What to Know About the Digital Services Tax That Sparked US-Canada Standoff

The tax is a 3 percent tax on revenue from any digital services provided to Canadian users.

Canadian Prime Minister Mark Carney (L) greets U.S. President Donald Trump at the G7 Summit in Kananaskis, Alberta, Canada, on June 16, 2025. Brendan Smialowski/AFP

Digital services taxes caused a major conflict between the United States and Canada just days ago, ending with the Canadian government rescinding them to continue trade talks with the United States.

President Donald Trump on June 27 announced he was ending trade negotiations with Canada over its digital services tax (DST), which impacts Americans.

The taxation puts additional taxes on U.S.-based tech companies such as Amazon, Google, and others when they do business in Canada.

Trump insisted that Ottawa stop the additional tax, calling it a “direct and blatant attack” on the United States.

The DST is a 3 percent tax on revenue from any digital services provided to Canadian users.

The president said he found it unacceptable.

“Based on this egregious tax, we are hereby terminating all discussions on trade with Canada, effective immediately,” the president said.

“We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period.”

The president also said that Canada was “obviously copying” the European Union, which has a similar tax, but assured reporters at an Oval Office event that the United States would prevail in removing the tax on American companies.

“We have all the cards. We do a lot of business with Canada,” Trump stated. “They do most of their business with us. When you have that circumstance, you treat people better.”

Canada Rescinds DST

Canadian Prime Minister Mark Carney announced just two days later, on June 29, that the tax would be removed.

“In our negotiations on a new economic and security relationship between Canada and the United States, Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” Carney said.

“Today’s announcement will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month’s G7 Leaders’ Summit in Kananaskis.”

Former Canadian Prime Minister Justin Trudeau implemented the tech tax in June 2024, pushing it as a measure to create more even trading between tech companies and as a way of generating additional revenues for the country.

That same year, the U.S. goods trade deficit with Canada was $63.3 billion, which equated to a 1.4 percent increase over the year before.

The law went into effect retroactively to 2022, and the payments to the Canada Revenue Agency were due on June 30 of this year.

Carney and Trump agreed to reach a deal within 30 days of the July 21 meeting at the G7 Summit, just days before trade negotiations broke down.

The EU’s Tax

Currently, the European Union imposes levies on American digital companies under its Digital Markets Act. The legislation also requires large online platforms to do more to moderate content that is illegal or deemed harmful. 

Despite negotiations between the EU and the United States, the European Commission’s spokesperson for tech sovereignty, defense, space, and research, Thomas Regnier, said: “Our legislation will not be changed. The DMA and the DSA are not on the table in the trade negotiations with the United States.”

The president has voiced concern about Europe’s sales to America exceeding what it buys from the United States. The trade deficit was roughly $178 billion.

Trump previously called the DSA “extortion,” and signed a memorandum in February, saying of the EU, “Rather than position their own companies and workers for success, foreign governments have been taxing the success of America’s companies and workers.” 

Other Tax Relief

The conflict and resolution also came days after lawmakers agreed to Treasury Secretary Scott Bessent’s request to remove an international punitive tax measure that could be implemented by the United States out of the omnibus bill, making its way through Congress. 

The punitive tax on foreign investments previously in the reconciliation bill was removed after Bessent assured lawmakers that a G7 negotiation allowed American and international companies equal competitive footing.

In a series of June 26 posts on X, Bessent said, “After months of productive dialogue with other countries on the OECD [Organization for Economic Co-operation and Development] Global Tax Deal, we will announce a joint understanding among G7 countries that defends American interests.”

Section 899 of the Republican-led tax and spending bill, called the “One Big Beautiful Bill,” would have allowed Trump to impose punitive taxes on foreign companies based in nations that impose taxes on U.S. firms.

The “Enforcement of Remedies Against Unfair Foreign Taxes” measure targets individuals and businesses with ties to “discriminatory foreign countries.”

This includes foreign individuals and corporations not majority-owned by Americans or U.S. entities.

The Treasury secretary said that the countries came to a “joint understanding ... that defends American interests,” adding that the deal would “[preserve] our tax base” and that, because of their agreement, the 15 percent minimum corporate OECD taxes will no longer apply to U.S. companies.

Omid Ghoreishi and Andrew Moran contributed to this report.