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Canada has deleted a digital services tax that targeted American technological companies, in order to smooth business negotiations with its neighbor after President Donald Trump described the tax as a “direct and flagrant” attack.
The decision to abandon the tax, a 3% levy on the income of the largest technological companies, occurred a few hours before its entry into force on June 30.
“The cancellation of the digital services tax will allow negotiations for a new economic and security relationship with the United States to make vital progress and strengthen our work to create jobs and develop prosperity for all Canadians,” said Canada Minister of Canada François-Philippe Champagne in a statement on Sunday evening.
Prime Minister Mark Carney said the reduction in the tax “will support a resumption of negotiations to the July 21 calendar” to conclude a trade agreement that was declared at the G7 leaders in Kananaskis, Alberta.
Carney and Trump have agreed that they will resume negotiations, according to the press release. Trump said on Friday that the United States “ended” commercial discussions with Canada in retaliation against technological business tax, reviving a bitter North American trade war after months of relaxation.
Trump repeated these complaints on Fox News on Sunday. “Until they decrease certain taxes, yes,” he said. “People do not realize, Canada is very mean to manage.”
In December 2023, the Canada Parliamentary Budget Office estimated that the DST would increase federal government’s revenues by $ 7.2 billion ($ 5.3 billion) over five years.
The tax, announced for the first time in 2020, targeted companies such as Meta, Netflix and Amazon as well as local businesses. The people concerned had to produce a return by the end of June or to face a fine.
Although the tax is one of Trump’s main complaints, it was also unpopular to certain groups of Canadian companies.
“For many years, we have warned that the implementation of a unilateral tax on digital services could risk undermining Canada’s economic relations with [the US]”Said Goldy Hyder, President of the Canadian Business Council.
Trump’s unprecedented hostility towards his northern neighbor – with repeated threats to annex Canada and the taxation of prices in violation of a free trade agreement – dominated the Canadian elections and helped to propel the Liberal Party of Carney to victory.
Carney had promised to resist Trump and last week, the Minister of Finance said that Ottawa will move forward with the tax.
Carney also announced this month a huge increase in defense expenses in Canada, which allows him to reach NATO’s goal of at least 2% of GDP per year this year instead of 2030. This followed Trump’s criticism and other NATO members did not get their weight.
Canada has an annual negotiation relationship with the United States worth $ 1.3 T and sells most of its products and services in the United States.
Carney has launched a set of radical reforms to diversify the economy to rely too much on the United States, including a push to lower internal trade barriers that prevented the flow of goods and services between the provinces of Canada.
