Canada Has Removed a Key Obstacle to Constructive Trade Engagement By Rescinding Its Digital Services Tax, Says ITIF

WASHINGTON—Following Canada Prime Minister Mark Carney’s announcement that Canada will rescind its planned digital services tax on large U.S. tech companies, the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, released the following statement from ITIF Policy Analyst Hilal Aka:

Canada’s decision to withdraw its planned digital services tax after President Trump suspended bilateral trade talks over the measure is a welcome step toward restoring constructive U.S.–Canada engagement.

Unilateral DSTs are structurally unfair. Canada had planned to impose a 3 percent levy on gross digital-services revenue, taxing firms even when they operate at a loss. Compounding the problem, the tax would have applied retroactively to January 1, 2022, creating legal uncertainty and exposing companies to the risk of double taxation.

The rules were calibrated so that a small group of large U.S. platforms would have shouldered nearly the entire burden, while smaller domestic providers would not have been affected. In so doing, the measure starting June 30 would have transferred an estimated C$7.2 billion over the next four years from American tech companies to the Canadian Treasury. Such targeted, revenue-based measures distort competition, undermine trust at the negotiating table, and invite retaliation.

By rescinding the DST, Ottawa has removed a significant obstacle to fair and reciprocal trade discussions. We urge both governments to capitalize on this opening and craft a balanced framework that promotes innovation, investment, and mutual prosperity, without resorting to discriminatory, unilateral taxes.