What is digital services tax Canada just scrapped after Donald Trump called it ‘egregious'?
Canada has rescinded its digital services tax targeting U.S. technology firms in a bid to advance trade negotiations with the U.S., Canada's finance ministry said in a statement on Sunday, days after U.S. President Donald Trump called off trade talks.
'Canadian Prime Minister Mark Carney and Trump will resume trade negotiations in order to agree on a deal by July 21, 2025,' the ministry said.
On Friday, Trump abruptly cut off trade talks with Canada over its tax targeting U.S. technology firms, saying that it was a "blatant attack" and that he would set a new tariff rate on Canadian goods within the next week.
Canada's Digital Services Tax Act (DSTA) officially came into force on June 28, 2024, imposing a 3% tax on digital service revenues generated from Canadian users, even if companies have no physical presence in the country. The first payments are due on Monday, June 30, 2025, according to a report by Al Jazeera.
Initially proposed during the 2019 federal election under Prime Minister Justin Trudeau, the law targets large tech companies with global revenues over $820 million and Canadian revenues exceeding $14.7 million. Unlike traditional corporate taxes based on profit, this tax is levied on gross revenues tied to user engagement in Canada, the report said.
The tax applies to a range of digital services, including online marketplaces, Social media platforms, Digital advertising, Sale or licensing of user data. The tax was 3% of the digital services revenue a firm takes in from Canadian users above $20 million in a calendar year, and payments will be retroactive to 2022, the Al Jazeera report said.
US President Donald Trump said on Friday that he's suspending trade talks with Canada over its plans to continue with its tax on technology firms, which he called 'a direct and blatant attack on our country.'
Trump, in a post on his social media network, said Canada had just informed the U.S. that it was sticking to its plan to impose the digital services tax, which applies to Canadian and foreign businesses that engage with online users in Canada. The tax is set to go into effect Monday.
'Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately. We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period,' Trump said in his post.
Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately.
The digital services tax will hit companies including Amazon, Google, Meta, Uber and Airbnb with a 3% levy on revenue from Canadian users. It will apply retroactively, leaving U.S. companies with a $2 billion U.S. bill due at the end of the month.
Canada is the second-largest U.S. trading partner after Mexico, and the largest buyer of U.S 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.
(With inputs from agencies)
Key Takeaways Canada's digital services tax aimed at large tech companies faced backlash from the U.S.
The decision to rescind the tax was influenced by trade negotiation dynamics with the Trump administration.
Understanding international trade relations is crucial for countries implementing new tax regulations.
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