Threats and ultimatums work, it seems. Canada has ditched its digital services tax in a bid to save trade negotiations with the United States, just days after Donald Trump abruptly ended talks over the very same levy.
The US has been negotiating a trade deal with neighboring Canada for months, but these talks seemed to hit a stumbling block late last week after Trump accused Ottawa of imposing unfair taxes on American tech giants.
Calling Canada “a very difficult country to trade with,” Trump said the move is a “direct and blatant attack on our country” and announced plans to inform Canada of the tariffs it will pay to do business with the US within the next seven days.
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Canada’s 3% digital services tax would have cost American tech giants, which earn over $20 million in revenue, such as Amazon, Apple, and Google, more than $2bn a year, according to business groups’ estimates.
The first payments – retroactive to 2022 – were supposed to be made on Monday and would have cost US tech firms, including Meta, Amazon, and Alphabet, around $3 billion.
No one will pay, though. That’s because on Sunday, Canada’s finance ministry announced that the government was rescinding the digital services tax in order to successfully complete trade negotiations with the US.
Canadian Prime Minister Carney and US President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21st, said the ministry’s statement.
“Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” said Carney.
Canada first announced the digital services tax in 2020 to address the fact that many large tech firms operating in the country may not otherwise pay tax on revenues generated from Canadians. The tax had already come into force on June 28th.
The deal is extremely important to Canada. The country is the US’s second-largest trading partner after Mexico and the largest buyer of American exports.
Canada bought $349 billion of US goods last year and exported $412bn to the US, according to US Census Bureau data.
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