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Canada announced on June 29, 2025, that it was rescinding its plans to impose a digital services tax (DST) on large tech companies.[1] Coming just hours before the first payments were scheduled to be due, the announcement quoted Prime Minister Mark Carney and Finance Minister François-Philippe Champagne saying that rescinding the DST would allow negotiations to advance toward a new economic and security relationship with the United States.[2]

The Framework

Canada in November 2020 proposed a DST that would have imposed a 3 percent levy on revenues from online marketplaces, advertising, social media platforms, and user data sales.[3] The tax would have targeted technology companies with global annual revenues exceeding US$801 million and Canadian revenues above Can$20 million. What made this tax particularly controversial was its retroactive application to January 2022, which would have required affected companies to calculate and pay taxes on historical revenue streams, creating substantial administrative burdens.

Implications for U.S. Technology Companies

As originally proposed, this tax posed several challenges for U.S. technology companies that would have extended beyond mere financial implications. Unlike traditional corporate income taxes that target profits, the DST would have taxed revenue directly, making it particularly burdensome during economic downturns or when companies operate on thin margins. Major American platforms like Meta, Google, and Amazon would have have bore a disproportionate burden of this tax, given their market presence in Canada. Industry associations estimated the cost to U.S. companies would have reached US$2.3 billion annually, potentially forcing them to either absorb costs at the expense of innovation and growth or pass them on to Canadian businesses and consumers through higher prices.[4]

How China Would Have Benefited

This tax policy could have inadvertently strengthened China’s competitive position. As Chinese tech companies currently have a limited presence in the Canadian market, they would face minimal immediate impact from a DST. However, as these companies expand globally, they could strategically enter the Canadian market with state support and subsidies that help offset tax burdens and their initial entry would be tax free. This tax policy would have aligned with China’s broader strategy of gaining techno-economic power through both innovation and market-access advantages, potentially allowing Chinese firms to gain market share while U.S. companies grapple with increased tax obligations.[5]

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