Canada Scraps Digital Services Tax to Resume Trade Talks with U.S.

　　TMTPOST -- Canada on Monday scraped its digital services taxes on tech firms after U.S. President Donald Trump suspended trade talks between two North American countries over the levies.

　　Credit：Xinhua News Agency

　　To support the negotiations on a new economic and security partnership with the United States, Canada’s Minister of Finance and National Revenue François-Philippe Champagne announced on Monday that Canada would rescind the Digital Services Tax , according to a statement of the Department of Finance. Canadian Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025, the department said in the statement.

　　The announcement marked a reversal in the face of Trump’s threat. Trump’s top economic aide Kevin Hassett said the White House is likely to ask more countries to drop their digital serives taxes amid ongoing trade negotiations, following Canada’s concession.

　　“My expectation is that the digital services taxes around the world will be taken off, and that that will be a key part of the ... ongoing trade negotiations that we have,” National Economic Council Director Hassett told Monday.

　　With its hastily rescinding its digital services tax, the Canadian government “caved” to Trump, White House press secretary Karoline Leavitt said at a briefing later Monday. Carney Sunday night called Trump to “let the president know that he would be dropping that tax, which is a big victory for our tech companies and our American workers,” Leavitt said.

　　Canada’s DST was enacted in June 2024 under former Prime Minister Justin Trudeau’s government. The federal tax is applicable to large businesses — both foreign and domestic — that meet two specific criteria: a total global revenue of €750 million and up in a fiscal year of the group that ends in the previous calendar year, and over C$20 million of profits earned in Canada in the particular calendar year.

　　The legislation levies a 3% tax on digital services revenue over $20 million, and is retroactive to Jan. 1, 2022. Taxable revenue includes those of online marketplaces, digital advertising, social media, and user data — Inc., Apple Inc., Google and Meta Platforms, Inc. These companies have to pay DST equal to 3% of the digital services revenue that they make from Canadian users above C$20 million annually.

　　Canada’s Finance Department confirmed last Thursday the first payment for its DST is still due Monday, despite a Group of Seven agreement that resulted in removing the Section 899 “revenge tax” proposal from Trump’s tax bill. Keeping the digital tax will not affect the G7 agreement, which focuses on global minimum taxes, the Finance Department said.

　　Trump on Friday said he decided to terminated U.S.-Canada trade talks over the DST, which was slammed as a “direct and blatant attack on our country.” “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canad, effective immediately,” Trump posted on his social media platform Truth Social, suggesting his administration is readying the new tariff rates for Canada. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven day period,” the president said in the post.

　　U.S. Treasury Secretary Scott Bessent later Friday said the administration could launch a tariff investigation against Canada in the face of the looming digital services tax. Bessent told CNBC his inclination is that the U.S. Trade Representative’s office will open a tariff probe under Section 301 of the Trade Act of 1974. For Bessent, such action is “more durable, and could last longer” than tariffs based on the International Emergency Economic Powers Act, which Trump used for his so-called reciprocal tariffs unveiled on April 2, a date Trump proclaimed “Liberation Day”.