On June 29, 2025, the Canadian Ministry of Finance announced that Canada would cancel its digital services tax in a bid to reach a mutually beneficial comprehensive trade agreement with the United States. Canadian Prime Minister Carney and U.S. President Trump agreed to resume negotiations, expecting to reach an agreement by July 21. This implies that trade talks between Canada and the U.S. may be delayed until after the 90-day suspension period ends on July 9.
The statement indicated that the digital services tax, which was due to be imposed on June 30, has been suspended. Canadian Finance Minister Chrystia Freeland will soon propose the repeal of the “Digital Services Tax Act.”
Canada’s digital services tax was introduced in 2020 and passed as the “Digital Services Tax Act” in June 2024, set to begin its first round of collection on June 30, 2025. The tax targets businesses with over CAD 20 million (about 1.05 billion RMB) in digital service revenues from Canadian users within a calendar year, imposing a 3% tax rate. The tax primarily affects major U.S. tech companies such as Amazon, Apple, and Meta Platforms.
It is important to note that Canada’s digital services tax was one of the unfair tax practices that the U.S. intended to address in Clause 899 of the “Taxpayer’s Fairness Act,” which Trump has criticized. On June 26, U.S. Treasury Secretary Bessent announced via social media that the U.S. had reached a memorandum of understanding with other G7 countries, stating that the OECD’s second pillar rules would not apply to U.S. companies. Based on this progress, Bessent called for the removal of Clause 899 from the “Taxpayer’s Fairness Act.” In response, Republican lawmakers in Congress immediately moved to eliminate the clause in the upcoming Senate vote.
Clause 899, also referred to as the “retaliatory tax,” specifically targets the Under-Taxed Profit Rule (UTPR), digital services tax (DST), and digital profit tax (DPT) included in the second pillar, as well as any taxes deemed extraterritorial or discriminatory by the U.S. Treasury. The clause would also impose taxes on dividends and interest income earned by foreign investors in the U.S., which has garnered significant attention in the market.
After Bessent unilaterally announced the G7 memorandum, Canada, as the G7 chair, released the “G7 Statement on Global Minimum Tax” on June 28. Alaric analyzes that before the G7 statement, there had been skepticism in the market regarding whether the U.S. would actually remove Clause 899.
The “G7 Statement on Global Minimum Tax” said that earlier this year, U.S. Treasury Secretary outlined concerns about the second pillar rules of the OECD and proposed a “parallel” solution. U.S.-based companies would be exempt from the Income Inclusion Rule (IIR) and the Under-Taxed Profit Rule (UTPR). After considering the U.S. removal of Clause 899 and other factors, the G7 reached a consensus that the parallel system could preserve jurisdictions’ important achievements in addressing tax base erosion and profit shifting and provide greater stability and certainty for future international tax systems.
The global minimum tax was originally proposed by former U.S. Treasury Secretary Janet Yellen and pushed globally to address countries competing to reduce corporate tax rates. However, the global minimum tax failed to pass during the period when the Democrats controlled Congress, and Republicans strongly opposed it. After Trump began his second term, the first executive orders included provisions stating that the global minimum tax would not apply to the U.S.
On June 26, after the U.S. unilaterally prepared to remove Clause 899, Canadian Finance Minister Chrystia Freeland still announced that Canada would not delay the implementation of the digital services tax, and the tax would come into effect on June 30.
This move triggered a strong backlash from the U.S. On June 27, Trump posted on his social media platform “Truth Social,” stating that after Canada’s announcement of the digital services tax, he decided to end the months-long negotiations with Canada, calling Canada’s digital services tax “a direct and blatant attack on our country.” Trump further stated that he would announce new tariff rates for Canada within a week.
Trump emphasized in his post that Canada was mimicking the European Union: “They are clearly following the EU’s example, as the EU has taken similar measures and is currently in talks with us.”
Bessent also called for Canada to suspend the digital services tax, stating, “We believe implementing this policy retroactively is clearly unfair. This is a matter under Trudeau’s administration, and we had hoped that, as a gesture of goodwill, the new Carney government would at least suspend this policy during trade negotiations. But it seems they haven’t done so.”
The 90-day period during which the U.S. suspended high reciprocal tariffs on most trade partners is set to expire. As of now, aside from the agreement framework with the United Kingdom, trade negotiations with most countries have yet to make substantial progress. U.S. Commerce Secretary Gina Raimondo stated in a June 26 interview with Bloomberg TV that President Trump plans to finalize a series of trade agreements within the next two weeks, aiming to reach deals with ten major trade partners.
Bessent also stated that U.S. trade negotiations with other countries may not be completed before the original deadline of July 9, and that the new deadline is set for before Labor Day, September 1, 2025.