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Friday, July 18, 2025

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Canada Rescinds Digital Services Tax After Trump Halts Trade Talks

OTTAWA/WASHINGTON: In a significant reversal, Canada has announced the withdrawal of its contentious Digital Services Tax (DST) just days after US President Donald Trump suspended ongoing trade talks in protest of the levy. The decision aims to ease diplomatic tensions and pave the way for resumed negotiations ahead of the July 21, 2025 timeline agreed at the G7 Leaders’ Summit in Kananaskis earlier this month.

Prime Minister Mark Carney, in a formal statement on Sunday, confirmed that Canada and the United States had agreed to restart trade discussions, which had been abruptly cut off by President Trump on Friday over what he called a “direct and blatant attack on our Country”.

“Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline,” Carney said, emphasizing the importance of maintaining constructive dialogue with Canada’s largest trading partner.

Background: What Was the DST?

The Canadian DST, originally passed as law in 2024, proposed a 3% tax on the domestic digital revenue of large multinational firms, particularly targeting online marketplaces, social media companies, digital advertising platforms, and firms monetizing user data. The levy applied to companies earning over CAD 20 million ($14.6 million) in Canadian revenue annually and was set to be collected retroactively from 2022.

Although aimed at closing tax loopholes that allowed tech giants such as Apple, Amazon, Meta, and Alphabet/Google to minimize their Canadian tax obligations, the measure quickly drew ire from the White House.

Trump’s Reaction and Pressure Tactics

In his Truth Social post on Friday, Trump accused Canada of unfairly targeting US firms and announced a complete suspension of trade talks with Ottawa. He further warned that retaliatory tariffs would be announced within a week.

Trump’s move marked a sharp escalation in his administration’s protectionist stance, similar to previous trade spats with allies during his earlier term. Observers noted the broader implications for US relations with G7 partners, especially as France, the UK, and Italy have also implemented similar digital taxes.

Domestic Criticism in Canada

The Canadian government’s about-face has sparked criticism at home. Paris Marx, a prominent Canadian technology journalist, said the decision sends the message that “Canada can be pushed around.”

“Multinational tech companies do not pay their fair share of tax in Canada. This tax was designed to address that, and backing down shows weakness,” Marx said.
“The US has blocked a global solution under both Biden and Trump, and countries like Canada were left with no choice but to act unilaterally.”

Finance Ministry’s Response

In a press release, Canada’s Ministry of Finance confirmed that the collection of DST will be halted immediately, and legislation to formally repeal the Digital Services Tax Act will be tabled soon by Finance Minister François-Philippe Champagne.

The ministry reiterated that Canada’s “preference remains a multilateral agreement” through the Organisation for Economic Co-operation and Development (OECD) framework but acknowledged that progress on that front has been blocked.

Trade and Economic Context

Canada is the United States’ second-largest trade partner, with bilateral trade reaching nearly $762 billion in 2024. Despite being spared from Trump’s earlier April 2025 tariff package, Canada still faces 50% tariffs on steel and aluminum.

Analysts now see resumption of US-Canada trade talks as critical for the July 21 agreement deadline, especially with North American economic integration and supply chain coordination high on the agenda ahead of the 2026 North American Competitiveness Summit.

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