(Bloomberg) — Canada withdrew its digital services tax on technology companies such as Meta Platforms Inc. and Alphabet Inc. in a move to restart trade talks with the US.
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“Rescinding the DST will allow the negotiations to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,” Finance Minister Francois-Philippe Champagne said in a social media post late Sunday local time.
On Friday afternoon, US President Donald Trump said he was ending all trade discussions with Canada, one of its largest trading partners, in retaliation for the digital tax. He also threatened to impose a fresh tariff rate within a week.
Instead, Trump and Canadian Prime Minister Mark Carney agreed the countries will restart negotiations and try to settle a deal by July 21, according to a statement. The Canadian dollar strengthened to trade at C$1.3645 per US dollar as of 10:46 a.m. New York time.
For Canada, the economic stakes of the discussions are huge. About three-quarters of its exports go to the US, including the vast majority of its oil and many other commodities, as well as most of the cars and trucks it produces.
But the US also has something on the line: Canada is the largest buyer of US products. Last year, the US exported about $440 billion of goods and services to its northern neighbor and imported $477 billion from it, according to US government data.
“This tax would have fallen on Canadian consumers, businesses, and investors in the form of higher costs and hurt our economy at a critical time,” David Pierce, vice president of government relations at the Canadian Chamber of Commerce, said in an emailed statement. “And removing it moves us one step closer to a renewed, reliable trade deal with the US Administration.”
The first payment for Canada’s digital tax was supposed to be due Monday. The tax, which was passed into law last year by the previous government of former Prime Minister Justin Trudeau, was meant to charge 3% of the digital services revenue a firm makes from Canadian users above C$20 million ($14.6 million) in a calendar year.
The tax was designed to apply to revenues generated by online advertising and also would have hit firms such as Uber Technologies Inc. Over time, it would have cost foreign technology companies billions of dollars. A number of countries, including the UK, have also passed or proposed such digital taxes.
