Canada Drops Digital Tax to Restart Trade Talks With Trump

Canada has decided to withdraw its digital services tax in an effort to revive trade negotiations with the United States, following a halt initiated by President Donald Trump in response to the proposed levy.

Prime Minister Mark Carney announced on Sunday that he and Trump have reached an agreement to resume discussions. He confirmed that the new talks aim to meet the July 21, 2025, deadline set during this month’s G7 Summit in Kananaskis.

The tax, which was scheduled to come into effect on Monday, specifically targeted large technology firms operating in Canada. Trump criticized it as a “direct and blatant attack” on American tech giants such as Apple, Alphabet, Amazon, and Meta.

Critics argue that backing down under U.S. pressure undermines Canada’s position. Tech expert Paris Marx stated that dropping the tax demonstrates that Canada is susceptible to U.S. influence. He emphasized that multinational tech companies often avoid paying adequate taxes in Canada, and the digital services tax was designed to address this issue.

Originally proposed in 2020, the tax was to impose a 3 percent charge on digital services revenue exceeding $20 million annually from Canadian users, with payments retroactive to 2022. It covered online marketplaces, digital ads, social media platforms, and the sale or licensing of user data.

While Canada had hoped for a global framework through OECD negotiations, efforts were stalled under both the Biden and Trump administrations. With more countries moving forward on similar taxes, critics argue Canada’s retreat is a step backward.

The Canadian Finance Ministry confirmed that tax collection has been suspended and Finance Minister François-Philippe Champagne will introduce legislation to formally repeal the Digital Services Tax Act. The government maintained its preference for a multilateral agreement.

Canada remains the United States’ second-largest trading partner and its top export market, with bilateral trade totaling over $762 billion last year. Although Canada avoided sweeping tariffs imposed by Trump in April, it continues to face 50 percent duties on steel and aluminum.