Canada scrapped its digital services tax aimed at U.S. tech firms late Sunday, just hours before it was set to be implemented, to rekindle trade discussions with the United States.
Canadian Prime Minister Mark Carney and President Donald Trump are poised to restart negotiations, aiming to finalize an agreement by July 21, as stated by Canada’s Treasury.
Trump abruptly halted the trade discussions on Friday, criticizing the tax as a “blatant attack” on American businesses.
He reiterated his stance on Sunday, indicating plans to impose new tariffs on Canadian goods as early as next week, which could jeopardize the recently stabilized relationship between the two nations.
Following the G7 meeting in mid-June, there was a mutual understanding to conclude the new economic agreement within 30 days.
The proposed digital tax would have levied a 3% charge on revenue from Canadian users for companies exceeding $20 million in earnings, with payments backdated to 2022.
This tax would have affected major U.S. tech giants like Amazon, Meta, Google, and Apple.
Starting Monday, collection of the tax will cease, with Finance Minister François Philippe Champagne set to introduce a law to repeal the Digital Services Tax Act, according to a Treasury announcement.
The statement explained that the DST was initiated in 2020 to tackle the issue of leading tech companies operating in Canada without paying taxes on income generated from Canadian users. Canada has always favored multilateral agreements on digital services taxation.
Following the cancellation of the digital tax, stock index futures jumped, leading to positive sentiments spilling over into Asian markets.
Remarkably, Canada remains the second-largest trading partner for the U.S. after Mexico, being the top purchaser of American exports. Last year, Canada bought $34.94 billion worth of U.S. goods and exported $412.7 billion back to the States, according to U.S. Census Bureau data.
The Biden administration had previously requested consultations to resolve tax disputes in 2024, arguing they contradicted Canada’s obligations under the North American trade agreement.
While Canada had been managing to evade Trump’s extensive tariffs from April, it still contends with a hefty 50% tariff on steel and aluminum.
