Report from the Wall Street Journal
In Brief – The Canadian Government of Prime Minister Mark Carney has announced it is rescinding its digital services tax (DST) that targets the largest US digital companies in a bid to boost trade talks with the US and avoid major tariffs. Carney and President Donald Trump reportedly spoke on Sunday, June 29 and agreed to try to reach a trade deal by July 21. The Canadian DST, a supplemental 3% tax on the revenue of the largest digital platforms, was enacted in mid-2024 and the first company payments were due on Monday, June 30. The Canadian finance department instead announced that it would pause collections and that the government would introduce legislation to repeal the tax. Canada’s tax on digital giants was particularly contentious in the eyes of President Trump, who often called it out when describing Canada as being “nasty”, including when he recently threatened to stop negotiating with Canada to reach a deal to avoid implementing the major tariff increase on Canadian goods.
Context – Increasing taxes on the biggest digital companies, nearly all US-based, came into vogue in 2020 with France enacting the first DST. Others followed suit. President Trump used tariff threats in his first term to keep them at bay. President Biden was less strident, and many countries eventually began collecting them. If anything, Canada was late to the party. When Trump returned to the White House, he immediately revived tariff threats against countries with DSTs. However, his massive April wave of unilateral tariffs hitting countries regardless of DST policies appeared to potentially reduce the effectiveness of tariff threats to claw back digital taxes. For example, the US-UK trade deal did not include a UK promise to rescind its DST although the US Administration says they are still pressing the UK to withdraw it. Treasury Secretary Bessent has said eliminating DSTs is a top priority for the US-EU trade talks, where many member states have them, but both Germany and Poland, who have not had DSTs, have said they want to add them. On the other hand, India, Brazil and Italy have indicated that they would withdraw their DST in the context of a US tariff deal. Add Canada to that list.