Canada to Repeal Digital Services Tax Amid US Tensions

July 11, 2025

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The Canadian new government announced that, as part of negotiations with the US on a new economic and security partnership, it will repeal the Digital Services Tax (DST). The plan to introduce the DST was announced in 2020 and is a unilateral approach towards ensuring that digital and tech companies pay taxes in Canada. The DST was introduced in 2024, with the retroactive application from January 1, 2022.

Background and Implications for Digital Businesses

After Canada announced the introduction of the DST with retroactive application, the US claimed that Canada breached the United States-Mexico-Canada Agreement (USMCA), which guarantees that US businesses must not be in a less favorable position than Canadian-based businesses.

The crisis was further deepened, and the need to renegotiate economic and political agreements arose from the decision of US President Donald Trump to impose 25% tariffs on Canadian imports on January 30, 2025, and a 10% baseline tariff on all imports on April 2, 2025.

As a retaliatory measure, on March 31, 2025, Canada implemented a 25% counter-tariff on CAD 12.6 billion worth of steel and CAD 3 billion worth of aluminum products from the US. Additionally, both sides issued warnings of the potential for new tariffs to be imposed.

However, on June 16, 2025, the two sides reached an agreement to finalize a new economic and security deal by July 21, 2025. To ease tensions with the US, Prime Minister Mark Carney announced that in the coming weeks, Minister of Finance and National Revenue François-Philippe Champagne will present legislation to repeal the Digital Services Tax Act.

Conclusion

Given that the Canadian government aims to negotiate a multilateral agreement on digital services taxation, it plans to continue working on finding a suitable solution at the international level. However, due to rising economic and political tensions with the US administration, the new Canadian government decided to repeal its Digital Services Tax Act, which primarily affects major US tech giants, including Google, Amazon, Meta, and Apple.

Source: Government of Canada, VATabout - Canada - New Digital Services Tax Caused a Trade Dispute with the US, VATabout - Canada Digital Services Tax (DST) Registration Deadline & Key Steps

Why is Canada repealing the Digital Services Tax?

Canada is repealing the Digital Services Tax to ease rising economic and political tensions with the United States and to facilitate a new economic and security agreement.

When was Canada’s Digital Services Tax introduced?

The Digital Services Tax was introduced in 2024, with retroactive application from January 1, 2022.

What caused the dispute between Canada and the US over the DST?

The US argued that Canada’s Digital Services Tax violated the USMCA by placing US tech firms at a disadvantage compared to Canadian companies.

What retaliatory measures did the US and Canada take before the repeal?

The US imposed up to 25% tariffs on Canadian imports, and Canada responded with a 25% counter-tariff on billions of dollars worth of US steel and aluminum products.

Which companies were most affected by the Canadian DST?

Major US-based tech giants such as Google, Amazon, Meta, and Apple were primarily impacted by Canada’s Digital Services Tax.

What is Canada’s long-term plan for digital services taxation?

Canada intends to pursue a multilateral solution for digital services taxation through international negotiations rather than continuing with its unilateral DST approach.

Digital Services Tax (DST)

Digital