What is Canada’s digital tax and why is Trump killing trade talks over it?

As Canada pushes up with a caller digital services tax connected overseas and home exertion companies, United States President Donald Trump has retaliated by ending each commercialized talks and threatened to enforce further tariffs connected exports from Ottawa.

In a station connected his Truth Social level connected Friday, Trump called the caller Canadian taxation operation a “direct and blatant onslaught connected our country”, adding that Canada is “a precise hard state to commercialized with”.

“Based connected this egregious Tax, we are hereby terminating ALL discussions connected Trade with Canada, effectual immediately,” helium wrote. He added that helium would denote caller tariffs of his ain for Canada successful a substance of days.

US companies specified arsenic Amazon, Meta, Google and Uber look an estimated $2bn successful bills nether the caller tax.

Trump’s determination marks a crisp instrumentality to commercialized tensions betwixt the 2 countries, abruptly ending a much cooperative signifier since Mark Carney’s predetermination arsenic Canada’s premier curate successful March.

It besides marks a further escalation successful the trade-as-pressure maneuver nether Trump’s 2nd word successful Washington.

The US is Canada’s largest trading spouse by far, with much than 80 percent of Canadian exports destined for the US. In 2024, full bilateral goods commercialized exceeded US$762bn, with Canada exporting $412.7bn and importing $349.4bn – leaving the US, which counts Canada arsenic its second-largest trading partner, with a goods shortage of $63.3bn.

A disruption owed to tariffs connected products similar automobiles, minerals, vigor oregon aluminium could person ample ripple effects crossed some economies.

So, what is Canada’s integer tax? Why is Carney facing home pushback connected the taxes? And however is Washington responding?

What is Canada’s integer services tax?

Canada’s Digital Services Tax Act (DSTA) came into unit successful June past year. It is simply a levy connected tech revenues generated from Canadian users – adjacent if providers bash not person a carnal beingness successful the country.

The DSTA was archetypal projected during the 2019 national predetermination nether then-Prime Minister Justin Trudeau, and received support successful Canada connected June 20, 2024. It came into unit a week later, connected June 28. The archetypal payments of this taxation are owed connected Monday, June 30, 2025.

Large exertion firms with planetary revenues exceeding $820m and Canadian revenues of much than $14.7m indispensable wage a 3 percent levy connected definite integer services revenues earned successful Canada. Unlike accepted firm taxes based connected profits, this taxation targets gross gross linked to Canadian idiosyncratic engagement.

Digital services the levy volition use to include: Online marketplaces, societal media platforms, integer advertizing and the merchantability oregon licensing of idiosyncratic data.

One of the astir contentious parts of the caller model for businesses is its retroactive nature, which demands payments connected revenues dating backmost to January 1, 2022.

Canada’s Prime Minister Mark Carney walks with President Donald Trump aft a radical photograph astatine the G7 Summit, connected Monday, June 16, 2025, successful Kananaskis, Canada [Mark Schiefelbein/AP]

Why is Trump suspending commercialized talks implicit the caller tax?

On June 11, 21 US Congress members sent a missive to President Trump, urging him to unit Canada to destruct oregon intermission its Digital Services Tax. “If Canada decides to determination guardant with this unprecedented, retroactive tax, it volition acceptable a unspeakable precedent that volition person long-lasting impacts connected planetary taxation and commercialized practices,” they wrote.

Then, successful a Truth Social station connected Friday this week, Trump said Canada had confirmed it would proceed with its caller integer services taxation “on our American Technology Companies, which is simply a nonstop and blatant onslaught connected our Country”.

He added that the US would beryllium “terminating ALL discussions connected Trade with Canada, effectual immediately” and that helium would beryllium levying caller tariffs of his ain connected Canada wrong 7 days.

“They person charged our Farmers arsenic overmuch arsenic 400% Tariffs, for years, connected Dairy Products,” Trump said, adding, “We volition fto Canada cognize the Tariff that they volition beryllium paying to bash concern with the United States of America wrong the adjacent 7 time period.”

Later, astatine the Oval Office, Trump doubled down, saying: “We person each the cards. We person each azygous one.” He noted that the US holds “such powerfulness implicit Canada [economically]”. “We’d alternatively not usage it,” Trump said, adding: “It’s not going to enactment retired good for Canada. They were foolish to bash it.

“Most of their concern is with us, and erstwhile you person that circumstance, you dainty radical better.”

Trump besides said helium would bid a Section 301 probe nether the Trade Act to measure the DSTA’s effect connected US commerce, which could perchance pb to different punitive measures.

On Friday, White House National Economic Council director, Kevin Hassett, told the  Fox Business Friday programme: “They’re taxing American companies who don’t needfully adjacent person a beingness successful Canada.”

Calling the taxation “almost criminal”, helium said: “They’re going to person to region it. And I deliberation they cognize that.”

How has Canada responded?

Relations had seemed friendlier betwixt the 2 North American neighbours successful caller months arsenic they proceed with commercialized talks. Trump and erstwhile Prime Minister Justin Trudeau had clashed antecedently – with Trump calling Trudeau “very dishonest” and “weak” during the 2018 G7 talks successful Canada.

But recently elected Carney enjoyed a cordial sojourn with Trump successful May astatine the White House, portion Trump travelled to Canada for the G7 acme successful Alberta connected June 16 and 17. Carney said astatine the acme that the 2 had acceptable a 30-day deadline for commercialized talks.

In a little connection connected Friday, Prime Minister Carney’s bureau said of Trump’s caller threats to suspend commercialized talks implicit the integer tax: “The Canadian authorities volition proceed to prosecute successful these analyzable negotiations with the United States successful the champion interests of Canadian workers and businesses.”

Last week, Canadian Finance Minister Francois-Philippe Champagne told reporters that the integer taxation could beryllium negotiated arsenic portion of the broader, ongoing US-Canada commercialized discussions. “Obviously, each of that is thing that we’re considering arsenic portion of broader discussions that you whitethorn have,” helium had said.

Those discussions had been expected to effect successful a commercialized woody successful July. However, they are present successful limbo.

What bash Canadian concern leaders say?

Carney has been facing unit from home businesses arsenic well, which person lobbied the authorities to intermission the integer services tax, underlining that the caller model would summation their costs for providing services and informing against retaliation from the US.

The Business Council of Canada, a nonprofit organisation representing CEOs and leaders of large Canadian companies, said successful a connection that, for years, it “has warned that the implementation of a unilateral integer services taxation could hazard undermining Canada’s economical narration with its astir important trading partner, the United States”.

“That unfortunate improvement has present travel to pass,” the connection noted. “In an effort to get commercialized negotiations backmost connected track, Canada should enactment guardant an contiguous connection to destruct the DST successful speech for the elimination of tariffs from the United States.”

Italy’s Prime Minister Giorgia Meloni, from left, France’s President Emmanuel Macron, Canada’s Prime Minister Mark Carney, President Donald Trump, UK Prime Minister Keir Starmer and Germany’s Chancellor Friedrich Merz enactment successful a league of the G7 Summit, Monday, June 16, 2025, successful Kananaskis, Canada (AP Photo/Mark Schiefelbein) (AP)

Has Trump utilized tariffs to unit Canada before?

Yes. Prior to the DSTA, Trump has utilized tariffs to unit Canada implicit what helium says is its role successful the travel of the addictive drug, fentanyl, and undocumented migration into the US, arsenic good arsenic broader commercialized and economical issues.

On January 20, successful his inaugural address, Trump announced a 25 percent tariff connected each Canadian goods and a 10 percent tariff connected Canadian vigor resources. Trump claimed that Canada has a “growing footprint” successful fentanyl production, and alleged that Mexican cartels run fentanyl labs successful Canada, peculiarly successful British Columbia, Alberta and Ontario.

These tariffs were paused for 30 days pursuing assurances from Canada that due enactment would beryllium taken to curb the travel of fentanyl, and past re-imposed successful aboriginal March.

Do different countries levy a akin integer tax?

Yes, respective countries astir the satellite person introduced integer services taxes (DSTs) akin to Canada’s. France was 1 of the archetypal to present a DST successful 2019, eliciting an angry effect from Trump who was serving his archetypal word arsenic president. The French taxation is simply a 3 percent levy connected revenues from online advertising, integer platforms and income of idiosyncratic data.

The UK followed with a 2 percent taxation connected revenues from societal media platforms and hunt engines. Spain, Italy, and Austria person besides implemented akin taxes, with rates ranging from 3 to 5 percent. Turkiye has 1 of the highest DST rates astatine 7.5 percent, covering a wide scope of integer services specified arsenic contented streaming and advertising.

Outside Europe, India has a 2 percent “equalisation levy” connected overseas e-commerce operators which gain revenues from Indian users. Kenya and Indonesia person besides created their ain integer taxation systems, though they’re structured somewhat otherwise – Indonesia, for instance, applies Value Added Tax (VAT) – oregon income taxation – connected overseas integer services, alternatively than a DST.

The US authorities has powerfully opposed these taxes; immoderate of these disputes person been paused arsenic portion of ongoing negotiations led by the Organization for Economic Co-operation and Development (OECD), an planetary organisation made up of 38 subordinate countries, which is moving connected a planetary statement for taxing integer companies fairly.

Canada held disconnected connected implementing its DST until 2024 to springiness clip for the OECD talks. But erstwhile advancement stalled, it went up with the 3 percent taxation that applies retroactively since January 2022.

Should the EU beryllium disquieted astir this?

The European Union is apt to beryllium watching this concern intimately arsenic integer taxation is apt to beryllium a cardinal interest during its ain commercialized talks with the US.

Trump has repeatedly warned that akin taxation measures from different allies, including EU countries, could look terrible retaliation.

Trump’s medication has antecedently objected to integer taxes introduced by EU subordinate states similar France, Italy, and Spain. In 2020, the US Trade Representative investigated these taxes nether Section 301 and threatened retaliatory tariffs, though those were paused pending OECD-led planetary taxation negotiations.

The European Commission has confirmed that integer taxation remains connected the agenda, particularly if a planetary woody nether the OECD fails to materialise. President Ursula von der Leyen said connected June 26 that “all options stay connected the table” successful commercialized discussions with the US, including enforcement mechanisms against discriminatory US measures.

The high-stakes commercialized negotiations ongoing betwixt the US and the EU person a deadline for July 9 – the day that Trump’s 90-day intermission connected planetary reciprocal tariffs is owed to expire. Trump has threatened to enforce new tariffs of up to 50 percent connected cardinal European exports, including cars and steel, if a woody is not reached.

In effect to these threats, the EU has prepared a database of retaliatory tariffs worthy up to 95 cardinal euros ($111.4bn), which would people a wide scope of US exports, from cultivation products to Boeing aircraft. EU leaders person signalled that they volition support the bloc’s taxation sovereignty, portion remaining unfastened to negotiation.