Canada Scraps Tech Tax to Revive US Trade Talks

Canada has announced it will abolish a controversial digital services tax (DST) targeting major US technology companies, just hours before the first payments were due, in a bid to restart trade negotiations with the United States.

The decision follows US President Donald Trump’s decision on Friday to halt trade talks, branding the tax a “blatant attack” and threatening increased tariffs on Canadian imports. The DST would have imposed a 3% levy on revenues above C$20m for tech giants such as Amazon, Meta, Google, and Apple, with an estimated cost to these firms of over C$2bn (£1.06bn) in its first year, applied retroactively from January 2022.

Canadian Finance Minister François-Philippe Champagne confirmed the government would introduce legislation to scrap the tax and suspend payment collections, which were scheduled to begin on Monday. “Canada’s preference has always been a multilateral agreement related to digital services taxation,” Champagne stated, noting the tax was introduced in 2020 to address revenues generated by large tech firms from Canadian users. The move has been welcomed in the US, with White House economic adviser Kevin Hassett telling Fox News that trade talks would “absolutely” resume. US Commerce Secretary Howard Lutnick described the tax as a potential “deal breaker” for any trade agreement, expressing gratitude for Canada’s decision in a social media post. The tax had been a point of contention, with warnings from both the Biden and Trump administrations that it could strain the vital US-Canada trading relationship, which sees three-quarters of Canada’s goods exports—worth over $400bn annually—destined for the US. Canadian business groups also opposed the tax, arguing it would increase costs for consumers. Michael Geist, a law professor at the University of Ottawa, criticised the Canadian government’s handling of the DST, particularly its retroactive nature and dismissal of bipartisan US concerns. “It is hard to overstate how badly the government managed the DST issue over the past five years,” he wrote on his blog. The decision comes amid a turbulent period for US-Canada relations, with Trump previously threatening sweeping tariffs and even jokingly suggesting annexation. However, recent moves towards a new trade agreement by 21 July had signalled a thawing in tensions, bolstered by the election of Canada’s Liberal Party, led by former central banker Mark Carney. The American Chamber of Commerce praised Canada’s decision, with president Rick Tachuk calling it a “constructive decision” that strengthens the economic partnership between the two nations.