Canada Rescinds Digital Tax on U.S. Tech Firms, Paves Way for Trade Talks

OTTAWA/WASHINGTON:
Canada has officially withdrawn its plan to impose a digital services tax on large U.S. technology companies, clearing a major hurdle that had stalled trade negotiations between the two nations.

Canadian Prime Minister Mark Carney confirmed late on Sunday (June 29, 2025) that talks with the United States have resumed, after Ottawa agreed to drop the controversial levy.

The move follows an escalating war of words last week, when U.S. President Donald Trump announced he was suspending negotiations over Canada’s insistence on proceeding with the tax.

The Tax That Sparked Tensions

The planned digital services tax would have slapped a 3% levy on revenue earned from Canadian users by large technology companies—including Amazon, Google, Meta, Uber, and Airbnb.

Critics said the tax unfairly targeted American firms and risked provoking retaliatory tariffs in an already tense trade environment.

Canada had insisted the measure was meant to level the playing field for local businesses that pay domestic taxes, arguing that digital giants benefit from Canadian users without paying adequate tax in the country.

However, the tax was also set to be retroactive, potentially landing U.S. companies with a $2 billion bill due at the end of the month.

Carney, Trump Agree to Resume Talks

Following days of heated exchanges, Prime Minister Carney’s office confirmed that he and Mr. Trump had spoken and agreed to restart negotiations.

“Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit in Kananaskis,” Carney said in a statement.

President Trump, who travelled to Alberta for the G7 meeting earlier in June, had threatened to end trade discussions entirely if Canada proceeded with the tax, calling it a “direct and blatant attack on our country.”

Background: A Rocky Trade Relationship

The dramatic back-and-forth is the latest twist in a roller-coaster trade relationship between the two close allies.

Trump, now in his second term, has repeatedly taken a hard line on trade, launching disputes with partners including Canada, Mexico, the European Union, and China.

He has sometimes mocked Canada on social media, suggesting it might be “absorbed” as a U.S. state, remarks that Canadian officials have dismissed as unserious but unhelpful.

Negotiators had set a 30-day deadline for trade talks during the G7 summit in Alberta, but the digital services tax threatened to derail that fragile timeline.

The Canadian Government’s Move

Ottawa described the decision to withdraw the tax as made “in anticipation” of a broader trade deal with the United States.

Finance Minister François-Philippe Champagne said:

“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress.”

Canada’s government has long argued that a multilateral solution to taxing big tech companies is preferable.

Ottawa had initially threatened to impose its own digital tax after global talks at the OECD to agree on a universal digital tax regime stalled.

U.S. Pressure on Allies

The Trump administration has consistently opposed unilateral digital taxes by U.S. allies, arguing that they disproportionately target American companies.

Past disputes have seen Washington threaten tariffs on France and the UK over similar levies, before temporary truces were reached.

In Canada’s case, Trump’s administration made clear that the digital services tax was a red line, insisting it would walk away from broader trade negotiations if Ottawa moved ahead.

Impact on Tech Giants

The now-cancelled tax would have applied to both Canadian and foreign companies generating a minimum level of global and Canadian revenue from online user interactions.

But the biggest targets were American tech giants, which dominate the Canadian online advertising, e-commerce, and sharing-economy markets.

Analysts had warned that retaliatory tariffs could have followed, hurting Canadian exporters and consumers, especially in sectors like agriculture, autos, and energy.

Future of Canada–U.S. Trade Talks

Sunday’s announcement resets the clock on renewed negotiations, with both sides now aiming for a July 21, 2025, deadline for a potential trade deal.

Officials have been tight-lipped about the specifics of what the new economic and security arrangement might include.

Possible areas of focus include:

• Lowering tariffs and barriers on goods and services

• Improving cross-border supply chains

• Strengthening energy cooperation, particularly oil and gas exports

• Aligning security protocols at the border

Political Implications

For Carney, who became Prime Minister in late 2024, the tax retreat is politically sensitive.

His Liberal government had promised to ensure big tech pays its fair share, a pledge popular with many Canadians frustrated by the dominance of foreign firms.

Opposition parties have accused Carney of “caving in” to Trump’s bullying, while business groups welcomed the move as a pragmatic step to protect Canadian exporters from retaliation.

Trump’s Trade Strategy

For President Trump, the spat is typical of his hardball approach to trade, which he sees as a key political asset.

His team is preparing for potential new trade deals with Canada and Mexico, aiming to showcase “America First” results ahead of the 2026 midterms.

Trump’s social media post on Friday accusing Canada of a “blatant attack” underscored his willingness to escalate tensions quickly—but also his readiness to claim victory when partners back down.

Conclusion

Canada’s decision to withdraw its planned digital services tax on U.S. tech giants has cleared the way for the two countries to resume stalled trade negotiations.

While the move defuses an immediate trade war threat, it leaves questions about how Ottawa will keep its promises on taxing digital giants—and whether any lasting deal with Washington can truly be reached by the July 21 deadline.

For now, both sides are back at the table—but the underlying tensions remain.

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