Canada’s Digital Tax Removed as Trade Talks Resume with the U.S.

Canada has officially removed its digital services tax to restart trade talks with the United States. The tax would have placed a 3% levy on revenue earned from Canadian users by major U.S. technology companies such as Amazon, Google, Meta, Uber, and Airbnb. Canadian Prime Minister Mark Carney announced the decision on Sunday, June 29, 2025. As reported by The Hindu, this move follows tensions that paused trade talks after the U.S. strongly opposed the tax.

Canada’s digital tax removal comes just before it was supposed to take effect on Monday, June 30. The tax had been planned to apply retroactively from 2022, meaning U.S. companies would owe about $2 billion by the end of the month.

Why Canada Dropped the Digital Services Tax

The digital services tax was meant to make sure large tech companies paid fair taxes on profits earned from Canadian users. These companies, while not based in Canada, make billions from online services used by Canadians. The Canadian government believed that this tax would ensure fairness and help generate public revenue. However, the plan led to rising tensions with the U.S.

U.S. President Donald Trump strongly opposed the tax. He called it “a direct and blatant attack on our country” and decided to suspend trade talks with Canada on June 27. He also hinted at further economic penalties if Canada did not remove the tax. This pressure played a big role in Canada’s decision to back down from the plan. According to the Canadian government, the tax was canceled “in anticipation of a trade deal.”

Canada’s Finance Minister, François-Philippe Champagne, said that the decision to cancel the tax was taken to help restart meaningful trade discussions. “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress,” he said. The government now plans to introduce new legislation to officially remove taxes.

Prime Minister Carney and President Trump had met earlier in May to discuss trade. At that time, they set a 30-day deadline to resolve their issues. Both leaders attended the G7 summit in Alberta this month, where they agreed to continue discussions. The removal of the tax now clears the path for both sides to work on a larger trade deal.

What This Means for Trade Talks

Canada and the U.S. will now return to the negotiation table to reach a deal by July 21, 2025. This deadline was agreed upon during the G7 summit. The talks are expected to cover a wide range of issues, including digital trade, economic cooperation, and security matters. Restarting these talks is a positive sign after months of tension.

Trade between the two countries had already been facing difficulties. The U.S. had imposed high tariffs on Canadian steel, aluminum, and auto exports. These include a 50% tariff on steel, 25% on autos, and 10% on imports from many other countries. Canada had been pushing for some of these tariffs to be removed or reduced.

Despite earlier tensions, both leaders now appear willing to make progress. As Carney said in his statement, “This decision reflects Canada’s commitment to a fair, open, and rules-based trading system with our closest partner.” With Canada resuming trade talks, many hope this will bring more stability to North American trade.

What This Means for U.S. Tech Firms and Canada’s Future Plans

For U.S. tech giants like Amazon, Google, Meta, Uber, and Airbnb, the removal of the digital services tax is a major relief. If the tax had taken effect, these companies would have had to pay billions in back taxes. Many had raised concerns about the fairness of applying a retroactive tax on services that are already taxed elsewhere.

The cancellation also helps improve diplomatic and economic relations between the two countries. Canada’s decision shows that it is willing to compromise to maintain strong ties with its most important trade partner. The U.S. is Canada’s largest trading partner, and both countries benefit greatly from cross-border trade.

Canada still supports the idea of taxing digital services through a global agreement. Officials said they prefer a multilateral solution, where countries work together under the guidance of the OECD (Organisation for Economic Co-operation and Development). Canada has agreed to pause its tax efforts if global talks on the matter continue.

In the coming weeks, all eyes will be on the July 21 deadline. If Canada and the U.S. can reach a new trade agreement by then, it will help both economies. For now, the removal of the Canadian digital tax has cleared a major obstacle, giving trade talks a new chance to succeed.