Canada Cancels Digital Services Tax to Revive US Trade Talks

Canada has canceled its planned digital services tax on US tech companies just hours before it was set to take effect on June 30, aiming to revive stalled trade negotiations with the United States.

According to a statement from Canada’s Ministry of Finance on June 29, Prime Minister Mark Carney and President Donald Trump will restart talks to reach a new agreement by July 21. US Commerce Secretary Howard Lutnick welcomed the decision on X, saying: “Thank you Canada for removing your Digital Services Tax which was intended to stifle American innovation and would have been a deal breaker for any trade deal with America.”

The move boosted market sentiment, with Wall Street futures hitting record highs on June 30 amid optimism surrounding renewed US trade talks, including with Canada.

Trump had called off trade talks on June 27 in protest of the digital tax, calling it a "blatant attack." On June 28, he reiterated his stance and threatened to impose new tariffs on Canadian goods within a week, raising concerns about renewed tensions in US-Canada trade relations after a relatively calm period. The two leaders had met earlier in June at the G7 summit in Alberta, where Carney said they agreed to finalize a new economic deal within 30 days.

Canada’s digital services tax would have imposed a 3% levy on revenue earned by digital firms from Canadian users above US$20 million annually, retroactive to 2022. Major US companies such as Amazon, Meta, Google, and Apple would have been affected. 

Originally announced in 2020, the tax was meant to ensure that large tech companies doing business in Canada pay tax on revenue generated from Canadian users. However, Canada emphasized its preference for a multilateral agreement on digital taxation.

As the United States's second-largest trading partner, Canada imported US$349.4 billion in American goods last year and exported US$412.7 billion to the United States, according to the US Census Bureau.

The Biden administration had initiated trade dispute consultations in 2024, arguing that Canada’s digital tax violated the terms of the USMCA. Although Canada avoided broad tariffs from Trump in April, its steel and aluminum exports to the United States remain subject to 50% duties.