Canada scrapped its digital services tax targeting U.S. technology firms late on Sunday, only hours before it was due to take effect, in what appeared to be a bid to advance stalled trade negotiations with its southern neighbor.
Canadian Prime Minister Mark Carney and U.S. President Donald Trump will resume trade negotiations in order to agree on a deal by July 21, Canada's finance ministry said in a statement.
Trump abruptly called off trade talks on Friday over the tax targeting U.S. technology firms, saying that it was a "blatant attack."
He reiterated his comments on Sunday, pledging to set a new tariff rate on Canadian goods within the next week, which threatened to push U.S.-Canada relations back into chaos after a period of relative calm.
The breakdown in trade talks comes after the two leaders met at the G-7 in mid-June and Carney said they had agreed to wrap up a new economic agreement within 30 days.
Canada's planned digital tax was 3% of the digital services revenue a firm takes in from Canadian users above $20 million in a calendar year, and payments were to be retroactive to 2022.
It would have impacted U.S. technology firms, including Amazon, Meta, Alphabet's Google and Apple, among others.
Monday collection will be halted, Canada's finance ministry statement said, and Finance Minister Francois-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax Act.
"The DST was announced in 2020 to address the fact that many large technology companies operating in Canada may not otherwise pay tax on revenues generated from Canadians," the statement said. "Canada’s preference has always been a multilateral agreement related to digital services taxation."
Stock index futures rose after the news that the digital tax will be rescinded, and the bullish sentiment spilled over into Asian markets.
Canada is the second-largest U.S. trading partner after Mexico, and the largest buyer of U.S exports. It bought $349.4 billion of U.S. goods last year and exported $412.7 billion to the U.S., according to U.S. Census Bureau data.
The Biden administration had requested trade dispute settlement consultations over the tax in 2024, saying it was inconsistent with Canada's North American trade deal obligations.
Canada had escaped Trump's broad tariffs imposed in April but faces 50% duties on steel and aluminum.
