Canada Cancels Digital Services Tax to Resume Negotiations with the United States
The Canadian government announced the cancellation of the digital services tax that it planned to impose on American technology companies, just hours before it was due to take effect, in a move aimed at reviving stalled trade talks with Washington.
A statement from the Canadian Ministry of Finance stated that Prime Minister Mark Carney and US President Donald Trump will reopen negotiations with the aim of reaching an agreement by July 21.
President Trump had described the proposed tax as a "blatant attack," abruptly suspending negotiations on Friday, causing tension in bilateral relations. Trump also threatened to impose new tariffs on Canadian goods, warning of a return to chaos in trade between the two countries after a period of relative calm.
This development follows a meeting between the two leaders during the G7 summit in mid-June, where the Canadian Prime Minister at the time confirmed that the two sides had agreed to pursue a new economic deal within 30 days.
The tax was supposed to be a 3% levy on the revenues of technology companies exceeding $20 million annually in the Canadian market, with retroactive effect from 2022. The tax would have included tech giants like Amazon, Meta, Google under Alphabet, and Apple.
The ministry's statement explained that the tax collection, scheduled to begin on Monday, will be suspended, and Canadian Finance Minister François-Philippe Champagne will introduce a bill to repeal the "Digital Services Tax Act."
The statement noted: "This tax was announced in 2020 to address the fact that some major technology companies operating in Canada may not pay taxes on revenues from Canadian users," adding: "However, Canada has always preferred to reach a multilateral solution on digital services taxes."
US stock futures improved after the announcement of the cancellation, and the wave of optimism extended to Asian markets.
Canada is the second-largest trading partner of the United States after Mexico, buying American goods worth $349.4 billion in 2023, while exporting goods worth $412.7 billion to the United States, according to the US Census Bureau.
It is worth noting that the administration of former US President Joe Biden called in 2024 for consultations to settle the dispute over the digital tax, considering it a violation of Canada's obligations under the North American Free Trade Agreement (NAFTA). Despite Canada avoiding broad tariffs imposed by Trump, it still faces a 50% tariff on steel and aluminum imports.
