In a last-minute reversal, Canada has announced it will rescind its controversial digital services tax (DST) on major US technology companies, just hours before the first payments were due on Monday. The decision comes after US President Donald Trump halted trade negotiations on Friday, labeling the tax a “blatant attack” and threatening steep tariffs on Canadian imports.
The DST, introduced in 2020, imposed a 3% levy on Canadian revenue above C$20 million for tech giants like Amazon, Meta, Google, and Apple. The tax, applied retroactively to January 2022, was projected to generate C$5.9 billion over five years, with over C$2 billion expected in its first year. Canada’s Finance Minister, François-Philippe Champagne, confirmed the tax’s repeal in a statement, emphasizing Canada’s preference for a multilateral agreement on digital taxation. “The DST aimed to ensure large tech firms pay their fair share on Canadian revenues,” Champagne said, “but we are committed to constructive trade dialogue with our closest partner.”
The move follows intense pressure from the US, where Trump, in his second term, has cultivated strong ties with tech industry leaders. He called Canada’s tax “egregious,” warning that the US’s economic leverage over Canada—its largest trading partner—could lead to punitive measures. Canada exports over $400 billion in goods annually to the US, representing three-quarters of its total exports, while taking just 17% of US production. US Commerce Secretary Howard Lutnick praised Canada’s decision in a social media post, calling the tax a “deal breaker” for trade negotiations.
The reversal caps a turbulent period in US-Canada relations. After Trump’s inauguration, he threatened sweeping tariffs and even jokingly proposed annexing Canada. Tensions eased recently, with both nations aiming for new trade terms by July 21. Canada’s Liberal Party, now led by former central banker Mark Carney, has prioritized stabilizing relations.
The climbdown aligns with global shifts in taxing multinational tech firms, as countries like the UK adapt to complex corporate structures that minimize tax liabilities. Canada’s decision signals a pragmatic step to preserve its vital trade relationship with the US.