Is the ‘Google tax’ era coming to an end?

A wave of policy reversals and trade tensions is challenging the future of national digital services taxes (DSTs) — colloquially known as the “Google tax.”

India having already taken the step is not being followed by Canada who is making significant adjustments to their DST regimes, many in response to pressure from the United States, while transatlantic negotiations over Big Tech regulation and taxation come under the spotlight.

When India scrapped its equalisation levy

India has officially repealed its 6 per cent equalisation levy on foreign digital advertising services, a tax that had long been a point of contention with the United States.

Introduced in 2016, the levy applied to revenue earned by foreign digital platforms from Indian advertisers, including companies like Google and Meta.

The move to eliminate it came as part of amendments to the Finance Bill and took effect on April 1, 2025.

The tax was originally designed to ensure that global digital firms profiting from the Indian market without physical presence contributed to the national treasury.

However, concerns arose over the increased financial burden it placed on Indian businesses, as global firms passed the cost along to advertisers. Experts also cited complications with compliance and administration for foreign service providers.

Critics in the US government described the levy as discriminatory. India’s decision to abolish it is widely interpreted as a step to smooth trade relations with Washington, especially after recent tariff-related tensions following policy announcements by US President Donald Trump.

Canada cancels its DST just before deadline

In a surprise move, Canada rescinded its planned digital services tax on June 29, one day before the first major payment was due.

The three per cent levy would have applied retroactively from 2022 to revenue earned by large digital companies from Canadian users.

The expected first instalment amounted to nearly US$2 billion collectively for affected firms such as Google, Amazon, Meta, Airbnb and Uber.

The tax targeted online marketplaces, advertising platforms, and companies profiting from user data. Only multinational firms earning more than €750 million globally and at least CA$20 million annually from Canadian digital services would have been subject to the levy.

Canada’s policy was rooted in a belief that foreign digital giants were profiting from local users without paying a fair share of taxes domestically.

Despite years of preparation and parliamentary approval, the tax was abruptly pulled after an escalation in trade rhetoric from the White House.

Following a phone call between Canadian Prime Minister Mark Carney and Trump, Canadian Finance Minister François-Philippe Champagne confirmed the rollback late Sunday evening.

The decision came in the wake of Trump’s Truth Social announcement suspending trade negotiations with Canada over the tax. The US president claimed Canada was mimicking the European Union and warned of potential new tariffs.

Trump 2.0 puts a spotlight on DSTs globally

On February 21, 2025, Trump issued a presidential memorandum instructing the US Trade Representative, the Departments of Commerce and Treasury, and other federal entities to examine foreign taxes, penalties and regulatory actions aimed at American digital service companies.

The memorandum stated the administration’s intent to “protect American companies and innovators from what the Trump administration considers unfair and discriminatory taxation practices by foreign governments.”

It called for comprehensive investigations and potential retaliatory measures such as tariffs.

Though the memorandum itself did not introduce new policies, it directed key agencies to assess the DSTs, regulatory fines and laws imposed abroad — specifically singling out the European Union’s Digital Markets Act (DMA) and Digital Services Act (DSA) for scrutiny.

The Trump administration’s earlier tenure also saw DSTs challenged under Section 301 of the Trade Act of 1974, which allows the US to retaliate against perceived unfair trade practices.

At that time, agreements were reached with several countries to avoid tit-for-tat tariffs, but the issue remains unresolved under Trump’s current second term.

European framework under pressure

European countries, meanwhile, continue to implement or expand their own DSTs despite U.S. objections.

As of 2024, 18 countries, including France, Austria, India (prior to April 2025), and the United Kingdom, had DSTs in force.

These taxes typically apply to companies that exceed specific global and domestic revenue thresholds, targeting services like online ads, platform intermediaries, and monetization of user data.

The UK imposes a 2 per cent DST. France and Italy levy a 3 per cent tax. Germany does not have a DST but enforces other tax rules that impact foreign IP transactions involving US multinationals.

Italy has further expanded the scope of its DST to capture more revenue from global firms such as Meta, Google, and Amazon.

The proliferation of national-level DSTs in Europe has resulted in an increasingly fragmented and complex tax environment for tech firms. This has led to administrative burdens and heightened risk of double taxation for US companies operating abroad.

A 2024 report by the US-based Tax Foundation noted that almost half of European OECD countries had introduced or proposed DSTs while awaiting the outcome of global negotiations led by the Organisation for Economic Co-operation and Development (OECD).

The US argues that such national DSTs constitute non-tariff barriers that disproportionately affect American firms.

How trade negotiations hinge on digital regulations

Trump has recently suggested that the EU’s enforcement of its digital laws — including the DMA and DSA — is now part of broader trade talks between Brussels and Washington.

These laws aim to curb anti-competitive practices by large digital platforms and regulate online content, with penalties for non-compliance.

Although the EU insists that its digital regulations are not targeted at US firms specifically, Trump has repeatedly criticized them as unfair. Last month, Trump hinted that EU negotiators might be willing to soften enforcement of these laws in exchange for a transatlantic tariff agreement.

“Obviously copying the European Union, which has done the same thing, and is currently under discussion with us,” Trump said, referring to Canada’s DST and its similarities to EU digital laws.

The Wall Street Journal reported that a draft agreement might allow for a pause in enforcement of the DMA for US firms during ongoing trade discussions. However, this was strongly denied by EU officials.

Matthias Jorgensen, the EU’s top trade representative to the US, told Members of the European Parliament that “putting the EU’s regulatory autonomy on the table” was “not an option for us.”

At a recent summit in Brussels, EU leaders were also split on whether to accept a US-imposed 10 per cent baseline tariff on exports — potentially in return for certain trade exemptions.

In May, the UK agreed to accept the 10 per cent US tariff in exchange for relief on duties covering cars and metals. However, the UK’s DST was not part of that trade package.

At the recent G7 summit in Canada, European Commission President Ursula von der Leyen and Trump committed to resolving their disputes by July 9.

The EU has since received a fresh counterproposal from the US, although its terms remain undisclosed.

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With inputs from agencies