Canada Drops Digital Services Tax to Revive Trade Talks with U.S.

In a significant shift aimed at easing trade tensions, Canada has officially withdrawn its proposed Digital Services Tax (DST), just hours before it was scheduled to take effect. The move is widely seen as a goodwill gesture to revive stalled trade negotiations with the United States.

The 3% tax, introduced in 2024, targeted large digital companies earning over $20 million annually from Canadian users, with retroactive application to revenues since 2022. U.S. tech giants such as Google, Amazon, Meta, and Apple were among the intended targets, drawing strong opposition from Washington. Former U.S. President Donald Trump had suspended trade talks earlier, calling the DST “discriminatory” and warning of retaliatory tariffs on Canadian goods.

In response to mounting pressure and the risk of escalating trade friction, Canadian Finance Minister François-Philippe Champagne announced the government’s decision to revoke the tax. He emphasized that Canada continues to support fair taxation of digital multinationals but acknowledged the importance of bilateral cooperation and economic stability.

The decision marks a breakthrough in relations between the two North American allies. Both governments have now agreed to restart negotiations on a broader economic and security agreement, with a new deadline set for July 21, 2025. U.S. Commerce Secretary John Lutnick welcomed the development, calling it a “step toward restoring trust.”

Markets responded positively, with North American futures hitting record highs and Asian indices gaining momentum. The cancellation also aligns Canada more closely with ongoing multilateral efforts under the OECD to develop a global framework for digital taxation.

As Ottawa prepares to formally repeal the DST legislation, the renewed dialogue offers hope for a comprehensive trade deal, easing concerns over a potential cross-border economic rift.