The European Commission has formally abandoned its push for an EU-wide digital tax on major American technology firms, delivering a key win to President Donald Trump and US tech giants like Apple and Meta. The decision, confirmed in internal documents reviewed by POLITICO on Saturday, removes the digital levy from the EU's proposed budget framework for 2028–2035.

The move comes as Brussels engages in critical, final-stage negotiations with Washington over a wide-ranging trade deal. Officials suggest the retreat is part of a broader diplomatic strategy to secure favorable terms and prevent a breakdown in transatlantic economic relations.

According to POLITICO, the EU follows in Canada’s footsteps, after Ottawa scrapped its planned digital services tax targeting US tech giants last month, a move aimed at smoothing trade negotiations with Washington.

Scrapping the digital services tax comes at a steep financial cost; according to the Centre for European Policy Studies, a 5% rate could have generated €37.5 billion in 2026 alone, equivalent to nearly 19% of the EU’s 2025 budget and 8% of the bloc’s corporate income tax revenue.

Even the Commission’s earlier estimate from 2018 projected €5 billion annually from a modest 3% digital tax, while these revenues were considered essential to repaying collective EU debt incurred during the post-COVID recovery.

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"This is a major turn-around for the EU, which as recently as May floated taxing tech giants as a way of paying back the bloc's debt," an internal Commission document noted.

Shift linked to EU-US trade deal calculations

The timing of the reversal aligns closely with ongoing EU-US trade talks. The EU and US are working to finalize a deal that could reshape transatlantic commerce, which totaled €1.1 trillion in 2024. At stake are US tariffs on EU goods, particularly in sectors like automobiles, steel, aluminum, and agriculture.

President Trump’s administration recently extended the negotiation deadline to August 1, 2025. The EU’s decision to withdraw the digital tax appears aimed at avoiding retaliatory tariffs and preserving access to US markets, which account for 20% of EU exports and about 3% of its GDP.

US tech firms have long framed EU digital taxation as protectionist. Meta’s Chief Global Affairs Officer Joel Kaplan previously described Brussels’ regulatory push as an attempt to "handicap successful American businesses" and likened EU fines to "a multibillion-dollar tariff on Meta."

Apple, too, has resisted regulatory action, contesting a €500 million fine issued under the Digital Markets Act in early 2025. Industry-wide, the digital tax proposals were seen as a direct challenge to Silicon Valley’s global business model.

In turn, the Trump administration characterized the now-abandoned EU digital tax as "overseas extortion," echoing the views of the US tech sector. Critics argued that such taxes targeted American firms disproportionately while sparing Chinese and European counterparts.

Alternative tax proposals to fill budget gap

With digital taxation off the table, the Commission is floating several alternative revenue sources to meet its budgetary needs. These include:

• Electric waste taxes on discarded electronic goods;
• Enhanced tobacco taxes on cigarettes, cigars, e-cigarettes, and vapes;
• Corporate levies targeting EU-based firms with over €50 million in annual turnover;
• Brussels is also reaffirming its earlier plans for a carbon border tax and reallocating revenue from the EU Emissions Trading Scheme, though these proposals face opposition from Eastern European countries concerned about their economic impact.