Canada scraps Digital Services Tax: Why is this crucial for US and a big win for Trump

In a positive move for the Donald Trump administration, Canada rescinded its digital services tax targeting US technology firms late on Sunday, June 29, 2025. This move comes just hours before it was due to come into effect. The decision has been taken by Ottawa to advance stalled trade negotiations with the United States.

The Digital Services Tax (DST) affects mega companies that provide digital services, like online advertising or shopping, and generate over $20 million in revenue from Canadian sources. It was to be charged at 3% of the digital services revenue in a calendar year, and payments were to be retroactive to 2022.

Why did Canada scrap DST?

The scrapping of DST by Ottawa comes as a move to advance the stalled trade talks with Washington. Canadian Prime Minister Mark Carney and U.S. President Donald Trump will resume trade negotiations in order to agree on a deal by July 21, Canada's finance ministry said in a statement.

Trump abruptly called off trade talks on Friday over the tax targeting U.S. technology firms, saying that it was a "blatant attack." He reiterated his comments on Sunday, pledging to set a new tariff rate on Canadian goods within the next week, which threatened to push U.S.-Canada relations back into chaos after a period of relative calm.

The breakdown in trade talks comes after the two leaders met at the G7 in mid-June and Carney said they had agreed to wrap up a new economic agreement within 30 days.

Why was cancellation of DST crucial for the US?

The cancellation of the tax is crucial for Washington, as it would have impacted U.S. technology firms, including Amazon, Meta, Alphabet's Google, and Apple, among others. Canada’s move to repeal the tax is a crucial win for US President Donald Trump, who often claims that other countries are “ripping off” the United States, according to CNN.

The levy has been in place since 2023, but the first payments were to begin on Monday (June 30, 2025). It's retroactive to 2022, so U.S. companies would have ended up with a $2 billion bill, according to CBC. Monday collection will be halted, the Canada's finance ministry statement said, and Finance Minister François-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax Act.

"The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians," the statement said. "Canada’s preference has always been a multilateral agreement related to digital services taxation."

Why is Canada crucial for the US?

Canada is the second-largest U.S. trading partner after Mexico and the largest buyer of US exports. It bought $349.4 billion of U.S. goods last year and exported $412.7 billion to the U.S., according to U.S. Census Bureau data.

The Biden administration had requested trade dispute settlement consultations over the tax in 2024, saying it was inconsistent with Canada's North American trade deal obligations. Ottawa had managed to escape Trump's broad tariffs imposed in April 2025 but faces 50% duties on steel and aluminum.