Canada scraps tech tax to advance Trump trade talks

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Canada has scrapped a digital services tax that targeted US technology companies, in an effort to smooth trade negotiations with its neighbour after President Donald Trump described the levy as a “direct and blatant” attack.

The decision to abandon the tax, a 3 per cent charge on services provided by major technology companies in Canada, came hours before the levy was due to come into effect on June 30.

“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the US to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” said Canada’s finance minister François-Philippe Champagne in a statement on Sunday night.

Prime Minister Mark Carney said cutting the tax “will support a resumption of negotiations towards the July 21 timeline” for striking a trade deal that was declared at this month’s G7 leaders’ summit in Kananaskis.

Carney and Trump have agreed that they will resume negotiations with a view towards agreeing a deal, the statement said.

Trump said on Friday the US was “terminating” trade talks with Canada in retaliation against the tax on tech companies, reigniting a bitter North American trade war after months of détente.

Trump repeated these complaints on Fox News on Sunday. “Until such time as they drop certain taxes, yeah,” he said. “People don’t realise, Canada is very nasty to deal with.”

In December 2023, Canada’s parliamentary budget office estimated the DST would increase federal government revenues by C$7.2bn ($5.3bn) over five years.

The tax, first announced in 2020, targeted companies such as Meta, Netflix and Amazon as well as local businesses. Those affected had to file a return by the end of June or face a fine.

While the tax was one of Trump’s main complaints, it was also unpopular for some Canadian business groups.

“For many years, we have warned that the implementation of a unilateral digital services tax could risk undermining Canada’s economic relationship with its most important trading partner, the United States,” said Goldy Hyder, president of the Business Council of Canada. “That unfortunate development has now come to pblock.”