Canada is rescinding the Digital Services Tax (DST) to continue trade negotiations with the U.S.

On Friday (June 27), U.S. President Donald Trump announced on his Truth Social account that the U.S. would terminate all trade discussions with Canada due to the tax on U.S. tech companies, threatening additional tariffs on Canada within a seven-day period.

Later that day in the Oval Office, Trump, while discussing the tax, said “Economically, we have such power over Canada, I’d rather not use it,” adding that his administration would “stop all negotiations with Canada right now until they straighten out their act.”

On Sunday night (June 29), Canada’s Department of Finance issued a press release announcing that the DST is being rescinded “in anticipation of a mutually beneficial comprehensive trade arrangement with the U.S.” The release also states Prime Minister Mark Carney and Trump will resume trade negotiations with the intent to reach a deal by July 21.

The tax, which came into force June 2024, requires domestic and foreign companies that make more than $20 million in Canadian revenue from digital services, including advertising, online marketplaces, selling user data and user content contribution, to provide 3% of their Canadian revenues. The first payment was backdated to revenues earned since 2022 and, according to the parliamentary budget officer, the tax was anticipated to bring in $7.2 billion in government revenue in its first five years.

While Canadian companies are taxed as well, many of those impacted, such as Netflix, Meta, Amazon and Google, are U.S.-based.

Mark Musselman, an executive producer and former entertainment lawyer currently in the process of securing his PhD in Canadian cultural policy, told Playback Daily that Canada put itself into a corner with the DST, pushing it forward prematurely and then dropping it when encountering pressure from the U.S.

“It mirrors a familiar pattern we’ve seen with the Online News Act and aspects of the Online Streaming Act: strong rhetoric up front, followed by scrambled face-saving course corrections when met with resistance,” said Musselman. “It suggests a lack of long-term strategic clarity on digital policy.”

Musselman added that, with the DST being bargained away, it’s fair to ask whether the Online Streaming Act could be next.

“Once you signal that digital policy can be undone under pressure, you lose control of the agenda,” he said. “Rolling back the Online Streaming Act would eliminate hundreds of millions in anticipated funding towards Canadian production – funding which the government and industry are treating as guaranteed. Producers bought in quickly to the promise of new funding, with few questions asked about the regulation’s vulnerability to trade retaliation.”

Vik Singh, an associate professor within Toronto Metropolitan University’s Global Management Studies program at the Ted Rogers School of Management, said that Canada had little room to maneuver considering the U.S.’s firm stance.

“In the larger scheme of things, the potential tax revenue lost from withdrawing the DST is relatively minor compared to the economic impact of sweeping and restrictive tariffs,” said Singh. “These could impose a significant drag on the Canadian economy.”

He noted that the U.S. appears to hold a much stronger position in these negotiations, particularly with Canada’s economic dependence on the country.

“This development may also reignite debate around the Online Streaming Act and the regulatory role of the CRTC in overseeing digital platforms,” said Singh.

The first collection period, originally planned for Monday (June 30), has been halted. Minister of Finance and National Revenue François-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax Act “soon,” said the release. The news comes 11 days after Champagne told reporters that Canada would be moving forward with the DST despite trade talks with the U.S.

“Canada’s new government is focused on building the strongest economy in the G7 and standing up for Canadian workers and businesses,” said Champagne in a statement. “Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the U.S. to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians.”

Image: Unsplash