Canada has decided to rescind its planned digital services tax (DST) on large U.S. tech companies, according to a statement from Prime Minister Mark Carney. This decision follows the suspension of bilateral trade talks by President Trump over the measure.
The Information Technology and Innovation Foundation (ITIF), a think tank focused on science and technology policy, responded positively to this development. ITIF Policy Analyst Hilal Aka stated, "Canada’s decision to withdraw its planned digital services tax after President Trump suspended bilateral trade talks over the measure is a welcome step toward restoring constructive U.S.–Canada engagement."
The proposed DST would have imposed a 3 percent levy on gross digital-services revenue, affecting firms even when they operate at a loss. It was set to apply retroactively from January 1, 2022, potentially leading to legal uncertainty and double taxation risks for companies. The rules were structured so that primarily large U.S. platforms would bear most of the burden, while smaller domestic providers would remain unaffected.
Had it been implemented starting June 30, the measure was projected to transfer an estimated C$7.2 billion over four years from American tech companies to the Canadian Treasury. ITIF's Aka noted that such targeted measures could distort competition and undermine trust in negotiations.
With the DST now rescinded, Ottawa has removed what ITIF considers a significant barrier to fair trade discussions between Canada and the United States. Aka urged both governments "to capitalize on this opening and craft a balanced framework that promotes innovation, investment, and mutual prosperity, without resorting to discriminatory, unilateral taxes."