Canada has decided to cancel its digital services tax on U.S. technology firms just hours before it was set to go into effect in order to move forward with trade negotiations with the United States that had stalled.
The Canadian Prime Minister, Mark Carney, and U.S. President Donald Trump will resume trade discussions with the aim of reaching a deal by July 21, according to a statement from Canada’s finance ministry.
Trump had abruptly ended trade talks on Friday due to the tax targeting U.S. technology firms, calling it a “blatant attack.”
He reiterated his stance on Sunday, vowing to establish a new tariff rate on Canadian goods within the next week, potentially causing turmoil in U.S.-Canada relations after a period of relative calm.
The breakdown in trade talks follows a meeting between the two leaders at the G7 in mid-June where Carney stated that they had agreed to finalize a new economic agreement within 30 days.
The proposed digital tax in Canada was set at 3% of the digital services revenue generated by a company from Canadian users above $20 million in a calendar year, with payments retroactive to 2022.
This tax would have impacted U.S. technology giants such as Amazon, Meta, Google, and Apple among others.
According to the Canada finance ministry statement, the collection of the digital tax will be halted on Monday, and Finance Minister François-Philippe Champagne will introduce legislation to repeal the Digital Services Tax Act.
“The DST was introduced in 2020 to address the issue of large technology companies operating in Canada not paying taxes on revenues generated from Canadians,” the statement explained. “Canada has always preferred a multilateral agreement on digital services taxation.”
Following the announcement of the repeal of the digital tax, stock index futures rose, leading to a positive sentiment in Asian markets.
Canada is the second-largest trading partner of the U.S. after Mexico and the largest buyer of U.S. exports. It purchased $349.4 billion worth of U.S. goods last year and exported $412.7 billion to the U.S., as per U.S. Census Bureau data.
The Biden administration had initiated trade dispute settlement consultations regarding the tax in 2024, citing inconsistencies with Canada’s North American trade deal obligations.
Canada had avoided broad tariffs imposed by Trump in April but now faces 50% duties on steel and aluminum.
