Canada rescinds digital services tax after Trump cuts off trade talks

Canada has walked back on its digital services tax “in anticipation” of a mutually beneficial comprehensive trade arrangement with the United States, Ottawa announced Sunday night, just one day before the first tax payments were due.

The move comes after U.S. President Donald Trump announced over the weekend that he will be “terminating ALL discussions on Trade with Canada” in response to Ottawa’s decision to impose a digital services tax on American tech firms.

“Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit in Kananaskis,” Canadian Prime Minister Mark Carney said in the statement.

The first payments from Canada’s digital services tax, which was enacted last year and applies retroactively to 2022, were initially set to be collected Monday. The tax would have applied to both domestic and foreign tech companies, including U.S. giants such as Amazon, Google and Meta with a 3% levy.

This decision from Ottawa was an about-turn from Canadian officials earlier this month, who said they would not pause the digital services tax, despite strong opposition from the U.S.

Canada’s Minister of Finance and National Revenue Francois-Philippe Champagne added, “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians.”

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However, the statement from Canada’s finance ministry also said that Carney “has been clear that Canada will take as long as necessary, but no longer, to achieve that deal.”

The digital services tax was first introduced in 2020 to address a taxation gap where many large tech companies were earning significant revenues from Canadians, but were not taxed.

Ottawa also said that the tax was enacted while it worked with international partners — including the U.S.— on a multilateral agreement that would replace national digital services taxes.

Shortly after Trump said that the U.S. was “terminating ALL discussions on Trade with Canada,” Treasury Secretary Scott Bessent told CNBC’s Morgan Brennan that U.S. Trade Representative Jamieson Greer would be investigating the tax to “determine the amount of harm to the U.S. companies and the U.S. economy in general.”

“Canada has this digital services tax. And several other countries do too. We disagree, and we think that they discriminate against U.S. companies,” Bessent said on CNBC’s “Closing Bell: Overtime.”

“Several countries within the European Union have digital service taxes. None of them have done those retroactively,” Bessent added.

U.S. goods trade with Canada totaled roughly $762 billion last year, according to the Office of the U.S. Trade Representative.