Washington D.C./Ottawa – June 28, 2025 – The long-simmering dispute between the United States and Canada over Canada’s Digital Services Tax (DST) has escalated dramatically, with President Donald Trump announcing a complete termination of all trade discussions with Canada. This abrupt move comes as Canada’s DST, enacted last year, begins to require its first payments from large tech companies, many of which are American, starting June 30, 2025.
Trump, in a fiery post on his Truth Social platform, decried Canada’s DST as a “direct and blatant attack on our country,” drawing parallels to similar taxes imposed by the European Union. He further threatened to impose new tariffs on Canadian goods within the next seven days, signaling a significant escalation of trade tensions.
Canada’s Digital Services Tax, which became law on June 20, 2024, and came into force on June 28, 2024, levies a 3% tax on Canadian-source digital services revenue. This applies to foreign and domestic firms with annual worldwide revenues of €750 million or more and Canadian digital services revenue exceeding CAD 20 million. The tax is notably retroactive to January 1, 2022, meaning affected companies, predominantly major U.S. tech giants like Amazon, Google, Meta, Apple, Uber, and Airbnb, face a substantial bill, estimated to be around $2 billion USD in retroactive charges alone.
The Canadian government has maintained that the DST is a necessary measure to ensure that large, profitable digital companies contribute their fair share of tax revenue from their operations in Canada, especially as a global consensus on digital taxation has been slow to materialize. The Canadian Parliamentary Budget Office estimates the DST could generate CAD 7.2 billion in revenue over five years.
However, the U.S. has consistently argued that the DST is discriminatory against American firms and potentially violates Canada’s commitments under the US-Mexico-Canada Agreement (USMCA). The U.S. Trade Representative (USTR) had previously initiated consultations under the USMCA regarding the DST. U.S. industry groups, such as the Computer & Communications Industry Association (CCIA), have also voiced strong opposition, urging the USTR to open a Section 301 investigation, which could lead to retaliatory tariffs. The CCIA estimates the tax could lead to annual losses of between $900 million and $2.3 billion for U.S. firms and potentially result in up to 3,000 U.S. job losses.
This latest development marks a critical juncture in U.S.-Canada trade relations. While Canada has expressed a preference for a multilateral approach to digital taxation, it has proceeded with its unilateral tax to “protect the interests of Canadians.” The sudden halt in trade talks by the U.S. signals a clear intent to exert significant pressure on Canada, potentially opening a new chapter of trade disputes between two historically close allies. The coming days will reveal whether Canada will yield to U.S. demands or brace for a potential tariff battle.
