Canada rescinds digital services tax to salvage trade discussions with US

Canadian leader Mark Carney and President Donald Trump will try to reach a deal by July 21, Canadian spokeswoman says.

Canadian Prime Minister Mark Carney and President Trump at the G-7 Summit earlier this month. Picture: Ludovic Marin/Press Pool

Canada announced late on Sunday that it is rescinding a digital services tax in a bid to salvage trade discussions with the US after President Trump paused talks on Friday.

Canada’s finance department was set to collect billions of dollars from US tech companies on Monday, when payments were due under a digital services tax that Canada’s Liberal government implemented last year, under former prime minister Justin Trudeau.

On Sunday, the government announced it would pause collections and introduce legislation in Parliament to rescind the tax, “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States”.

Canadian Prime Minister Mark Carney spoke with Trump on Sunday, said a spokeswoman for the Prime Minister’s Office.

The two leaders decided to move forward with trade discussions with a goal of reaching agreement by July 21.

The White House didn’t immediately respond for comment.

In an interview with Fox News broadcast earlier on Sunday, Trump complained about “certain taxes” that Canada had imposed. “People don’t realise, Canada is very nasty to deal with,” he said.

Canada’s move comes two days after Trump announced that he had terminated trade talks with Canada over what he called an “egregious” tax that unfairly targeted U.S. tech companies.

Canada’s 3 per cent tax on technology companies’ revenue from providing digital services to Canadian users or sales of Canadian user data was retroactive to revenue dating to 2022, and fuelled opposition from America’s biggest tech companies, Washington-based lobby groups, senior congressional leaders and officials in both the Biden and Trump administrations.

On June 19, despite the U.S.’s opposition, Finance Minister François-Philippe Champagne said Canada would remain firm on keeping the digital-services tax.

That refusal to back down incensed Trump, according to a senior US official. He gave no warning to Carney before he blasted the decision on Truth Social. “Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” Trump wrote Friday.

On Sunday, the Canadian finance department said in a statement that it had enacted the tax as a stopgap while it worked with other countries, including the U.S., to replace national digital-services taxes.

“Canada’s preference has always been a multilateral agreement related to digital services taxation,” said the statement.

Trump said in the Oval Office last Friday that the US “held all the cards” in its talks with Canada on a new economic-and-security pact between the two countries. About one-fifth of the country’s economic output depends on trade with the US, and recent economic data suggest that Canada’s gross domestic product likely contracted in the second quarter, with the risk of another decline in the third quarter, because of elevated trade uncertainty and a sharp drop in exports to the US.

Carney has been trying to get a trade agreement with the US to lift 50 per cent tariffs on steel and aluminium, as well as duties on cars made in Canada and on imports that aren’t compliant with the US-Mexico-Canada trade agreement.

The American Chamber of Commerce in Canada applauded Carney’s decision to drop the digital tax.

“We commend the Canadian government for choosing a path that prioritises dialogue and progress,” said the chamber’s chief executive, Rick Tachuk.

Michael Geist, an internet-law expert at the University of Ottawa’s law school, said Canadian officials had ignored warnings from Washington dating back to 2023 about economic repercussions from pursuing a digital-services tax.

Both the Biden and Trump administrations argued the digital tax was targeted mostly at US companies.

“Hard to imagine this could have been handled in a worse way,” Geist said about Ottawa’s decision to scrap the digital tax.

Dow Jones Newswires