The Canadian government is dropping a digital services tax set to kick in on Monday after President Donald Trump said his administration would end trade talks with the country over the policy.
From Monday, tech companies making more than $20 million annually from Canadian users or by selling Canadian user data would have had to pay a 3% tax. The duty was set to apply retroactively from 2022, costing U.S. tech firms billions of dollars.
In a statement Sunday night, Canada’s Ministry of Finance said that it had halted collection, and legislation would soon be brought forward to formally rescind the tax.
“Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025,” the statement adds.
The repeal came after Trump took aim at the tax in a Friday post on Truth Social, branding it a “direct and blatant attack on our Country.” The president said that the U.S. would end ongoing trade discussions between the two countries and threatened to impose new tariffs.
In an Fox News interview aired earlier Sunday, Trump had doubled down on the comments, calling Canada “very nasty to deal with” and reiterating previous statements about Canada becoming the 51st U.S. state.
Canadian products not covered by the U.S.-Mexico-Canada Agreement are already subject to U.S. tariffs of up to 25%. The country’s exports have also been hit by new U.S. steel and aluminum tariffs, which now stand at 50%, and some automobile tariffs.
At a Group of 7 meeting in Canada earlier this month, both sides committed to accelerating efforts to secure a deal that would alleviate some of the trade tensions.
“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,” Canadian Prime Minister Mark Carney said in a statement announcing the pause.
The Finance Ministry statement stressed that the tax was only ever supposed to be a temporary measure that would last until countries could reach a multilateral agreement on digital taxation.
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“While Canada was working with international partners, including the United States, on a multilateral agreement that would replace national digital services taxes, the DST was enacted to address the aforementioned taxation gap,” the statement reads.
Michael Geist, a internet and e-commerce law professor at the University of Ottawa, however, argued in a series of posts to X that the about face was the latest in a series of “ridiculous blunders over several years to get to this point.”
He noted that the Canadian government had ignored multiple warnings of the risks of a digital services tax to the U.S.-Canada relationship, including under President Joe Biden, “only to cave at the last minute.”
“This has been apparent for years, yet Canadian officials regularly dismissed warning signs and chose to press ahead in midst of negotiating a broader deal. Risky strategy,” Geist said. Canada, he added, ultimately “overplayed its hand.”
White House Press Secretary Karoline Leavitt struck a similar tone during her weekly press briefing on Monday, arguing Carney "caved to President Trump."
"It was a mistake for Canada to vow to implement that tax," Leavitt added. "The president made his position quite clear to the prime minister."
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