Canada scraps tax on tech giants in bid to revive US trade talks
US President Donald Trump had halted negotiations with Ottawa over what he called an "attack" on American companies
Canada has shelved its plan to slap a digital services tax (DST) on tech companies in a bid to get trade talks with the US back on track, reversing course just as the measure was due to kick in.
The 3% tax, passed into law last year by the government of former Prime Minister Justin Trudeau, was set to take effect on Monday and would have been applied retroactively to 2022-2024 profits. It would have primarily targeted US companies like Amazon, Google and Meta, costing them an estimated $3 billion.
"Today's announcement will support a resumption of negotiations toward the July 21, 2025 timeline set out at this month's G7 Leaders' Summit in Kananaskis," Canadian Prime Minister Mark Carney said in a statement on Sunday.
"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," he added.
Carney and Trump agreed to resume trade talks when they met earlier this month at the G7 summit, where the prime minister said they had agreed to finalizing a new economic agreement within 30 days.
Canadian Finance Minister Francois-Philippe Champagne wrote on X late on Sunday that dropping the levy would allow Ottawa "to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians."
On Friday, US President Donald Trump had denounced the tax hike as a "direct and blatant attack on our country" and threatened to terminate all trade negotiations that had been ongoing between the North American neighbors for months. He also vowed to impose new tariffs on Canadian goods within a week.
US Commerce Secretary Howard Lutnick welcomed the reversal, saying the tax "would have been a deal breaker for any trade deal with America."
Tensions between the two countries have been mounting since February, when Trump imposed a 25% tariff on Canadian goods shortly after taking office. Ottawa responded with reciprocal duties, though Trump later suspended the measure, saying he was open to country-specific deals that benefit US businesses.
Trump has long accused Canada of exploiting US trade and on several occasions suggested it should become America's 51st state.
This fueled the ambitions of the country's Liberal Party and Carney's election campaign. Shortly before taking office as prime minister, he described Trump's tariffs as "unjustified" and stated that "Canada will win" the trade war with the US. On March 14, the day he was sworn in, he vowed that the country "will never, ever, in any way, shape, or form, be part of the United States."
Canada is the US's second-largest trading partner after Mexico, and the top buyer of US exports. According to the US Census Bureau, it imported $349 billion in American goods last year and exported $412 billion to the US.
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31 minutes ago
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Why the digital services tax had to die for the Canada-U.S. trade deal to live
Article content WASHINGTON, D.C. — Ottawa could almost taste the tax revenues. For nearly five years, Canada has been planning a digital services tax (DST) that would generate billions in revenue by taxing large tech firms on their Canadian digital revenues. Just hours before the first DST payments were due on Monday, however, Prime Minister Mark Carney's government called the whole thing off. Article content Carney's move late Sunday was a capitulation to the White House — and he had little choice after President Donald Trump abruptly cancelled trade negotiations on Friday over the DST, calling it 'a direct and blatant attack on our country.' Faced with 25 per cent tariffs on most Canadian exports to the U.S. and 50 per cent tariffs on its steel and aluminum, Canada needed to keep the trade talks alive. So Carney did what had to be done, stating that the move 'will support a resumption of negotiations toward the July 21, 2025, timeline set out at this month's G7 Leaders' Summit in Kananaskis.' What led to the DST, and why did Washington oppose it? The Liberals first introduced the DST in 2020 — a 3 per cent tax on big tech companies with Canadian digital revenues above $20 million per year — as a stopgap, with the real goal of pushing for a multilateral, OECD-led overhaul of the international tax system to curb multinational tax avoidance. Article content Several countries, including France, the United Kingdom, Italy, and Spain, had begun implementing DSTs in 2019 and 2020, raising alarm bells for large U.S. tech firms and advocacy groups. The Computer & Communications Industry Association (CCIA), a U.S.-based trade association representing technology and communications companies, was one that pushed back, calling the DSTs discriminatory. The taxes 'hit U.S. companies but are designed to exempt local companies, putting U.S. firms at a competitive disadvantage in the market,' said Jonathan McHale, VP of digital trade at CCIA. President Joe Biden supported an OECD approach to reforming the international tax system – and its moratorium halting the rollout of unilateral DSTs, adopted by the OECD/G20 Inclusive Framework in late 2021. Canada waited in hopes of there being an international tax reform, but by July 11, 2023, when the OECD agreed to another year-long extension on the moratorium, Prime Minister Justin Trudeau's government decided it had waited long enough. It pushed ahead unilaterally to pass the Digital Services Tax Act last summer, despite warnings from U.S. diplomats and risk experts that it could spark a trade war. Article content While Canada's approach was meant to tax both foreign and domestic firms, McHale said that's simply how countries go about saying they are not formally targeting American companies. He referred to 'disguised techno-trade' and proportionality, noting that 'on the surface, [the DST] looks neutral, but the impact is essentially focused on a particular foreign country.' Canada's DST, he said, would've mostly impacted U.S. tech firms. But there was opposition to it at home, too, he noted, because the tax would have hurt would-be startups trying to establish themselves in the Canadian market. 'There were lots of Canadian companies that were vocal in their opposition to this, the Canadian Chamber of Commerce chief among them,' he said, noting that they didn't want it to upset their strong startup culture and digital economy. Biden's team pushed back last year when the tax was passed, arguing repeatedly for a multilateral solution, and then-U.S. Ambassador to Canada David Cohen labelled it 'discriminatory.' Article content Trump, in turn, had more leverage and threatened the cessation of trade talks and even higher tariffs, but many saw this coming. 'If you don't push back against Canada's [DST], isn't that a green light for other countries to move ahead?' asked McHale. Opposition to DSTs has been a 'longstanding bipartisan issue' in the U.S., he noted. Could dropping the DST lift trade? It can't hurt. Besides, it was necessary to get back to the negotiating table. After Canada rescinded the tax, Trump and Carney agreed to resume trade talks with an eye toward reaching a deal by July 21, 2025. 'Canada's preference has always been a multilateral agreement related to digital services taxation,' Carney's statement said, reminding folks that the DST was only ever meant to be a short-term solution. His government also remains 'engaged in discussions with the U.S. and other countries to find a workable solution on international taxation that achieves our common objectives,' a Department of Finance official told National Post. Article content The Canada Revenue Agency issued a statement on Monday confirming the tax was suspended and noting that reimbursements will be made to companies that already paid 'if legislation is tabled in Parliament and receives royal assent.' The White House, meanwhile, viewed the decision to drop the DST as positive. Trump officials also hope the move will encourage other countries to eliminate similar taxes to avoid U.S. retaliation moving forward. Canada's DST 'would've been the most burdensome tax for U.S. companies — topping the list of revenues extracted from U.S. firms,' McHale said. But DSTs are still in effect in several countries that have strong trade links with the U.S., including the U.K., Spain, and France, and they should expect similar pushback from Washington. 'The U.S. government has been pretty clear that they oppose the policy … so it stands to reason that it would push back against these others as well,' McHale added. Article content Latest National Stories
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