Canada caves to Trump and rescinds its digital service tax on big tech

Canada has folded in its battle with US President Donald Trump over tariffs by cancelling its proposed digital services tax (DST) on big tech companies, the government announced. On Friday, Trump ended trade talks over the levy, which he called “a direct and blatant attack on our country.” However, discussions have resumed now that the DST is gone, according to Canadian Prime Minister Mark Carney.

The DST has been in effect since last year but Canada was due to collect the first payments totalling around $2 billion on June 30. However, those will now be halted. “To support those negotiations, the Minister of Finance… announced today that Canada would rescind the Digital Services Tax (DST) in anticipation of a mutually beneficial comprehensive trade arrangement with the United States,” the Department of Finance wrote yesterday.

With the DST, Canada planned to apply a three percent tax on content from large tech firms that relied on engagement from Canadian users. The justification was that 70 percent of ad revenue spending in the nation (an estimated $25 billion this year) goes toward US firms like Google and Meta, but those companies don’t pay corporate taxes in Canada. Some of funds collected under the DST would have been funnelled to media companies hurt by Google and Meta’s ad dominance.

The levy was opposed by not only the US government under the Biden and Trump administrations, but businesses in Canada too. Local companies were concerned it would increase their costs after Google, for one, said it would increase ad rates by at least 2.5 percent in Canada to cover the cost of the DST.

The capitulation is a large victory for Trump and a windfall for his tech company benefactors. However, Canada has been hammered by Trump’s 25 percent tariffs to the tune of billions on metals, minerals and other goods, so Carney’s government likely felt it necessary to sacrifice the DST.