Canada will cancel the controversial digital services tax that rankled U.S. President Donald Trump, only weeks after Prime Minister Mark Carney’s government committed to moving forward with it.
The move comes days after Trump threatened Friday to end all trade talks with Canada and slap the country with additional tariffs, saying the tax was a “direct and blatant attack on our country.”
Finance Minister François-Philippe Champagne announced the rollback Sunday after a phone call between Carney and Trump.
Here’s what you need to know about the digital services tax.
What is the digital services tax?
The digital services tax was set to take effect for the first time on Monday.
It was to hit big tech companies around the world, including American companies like Amazon, Google, Meta, Uber and Airbnb, with a three per cent tax on revenue from Canadian users. The idea was to close what some saw as a tax loophole which allowed companies to earn money off Canadians but not pay taxes in Canada.
The Organization for Economic Co-operation and Development had been working for years to set up an international digital service tax, but when work stalled, Canada went ahead with its own legislation.
The tax officially became law last year and was retroactive to 2022, but the first payments aren’t due until the end of June. That meant U.S. tech companies were to pay a $2 billion (U.S.) bill by the end of the month, according to The Canadian Press.
The independent Parliamentary Budget Officer reported in 2023 that the tax would raise about $1.2 billion per year in government revenue.
The tax had been long planned by the Liberal government, first promised in the 2019 election and delayed for years.
Why doesn’t Trump like it?
In his Truth Social post, Trump said the tax is a “direct and blatant attack on our country.”
“They are obviously copying the European Union, which has done the same thing, and is currently under discussion with us, also,” Trump wrote.
Because of the tax, Trump said he is terminating all trade discussions with Canada.
Trump had previously lashed out against the tax. In a fact sheet released in February, the White House said “only America should be allowed to tax American firms.”
And the opposition didn’t start with Trump. Last year, under the Biden administration, the Office of the United States Trade Representatives said it would do what’s necessary to halt the digital services tax.
A group of Canadian business organizations, including the Canadian Chamber of Commerce, Retail Council of Canada and Canadian Bankers Association, also released a letter earlier this month that said the tax could result in U.S. retaliation that could hurt Canadian pension funds and investments.
“The negative impact of this measure cannot be understated for the Canadian economy,” the letter said, calling for the tax to be paused.
Why did Canada cancel the tax?
Earlier in June, Champagne said Canada is “going ahead” with the tax.
“The (digital services tax) is in force and it’s going to be applied,” he told reporters on Parliament Hill.
But after Trump’s Friday post, activity on the file erupted, culminating with a call between Carney and Trump on Sunday night. Ultimately, the Carney government cancelled the tax to reopen trade negotiations.
“In our negotiations on a new economic and security relationship between Canada and the United States, Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” Carney said in a statement.
With files from Alex Ballingall and The Canadian Press
