Canada Drops Digital Tax to Resume US Trade Talks

Trade negotiations between the United States and Canada are set to resume this week following Ottawa’s decision to abandon its proposed digital services tax (DST), which had drawn sharp criticism from Washington.

Initially introduced in 2020, the now-withdrawn DST aimed to impose a 3% levy on revenues generated by foreign tech giants, including Amazon, Meta, and Apple, from Canadian digital users.

The move sparked significant backlash from the United States, with former President Donald Trump denouncing the measure as a direct attack on American companies and halting trade discussions in protest.

However, in a strategic reversal just hours before the tax was due to take effect, Canada scrapped the policy, clearing the path for negotiations to restart. The Canadian Foreign Ministry confirmed that talks would resume to reach a comprehensive bilateral agreement by July 21.

The ministry emphasized that Canada’s long-term preference remains a multilateral consensus on digital taxation, but that its decision to pull back the DST reflects a commitment to fostering a mutually beneficial trade partnership with the United States.

Canada had previously argued that the DST was necessary to address a taxation gap in the digital economy, where major platforms were generating substantial revenue without proportional tax contributions.

Tensions had also risen over the perception that Canada was emulating similar EU digital tax frameworks, prompting additional pressure from Washington.