Canada drops tech tax to restart US trade talks

 Canda will eliminate a tax imposed on major US technology companies, just hours before the initial payments were scheduled, to facilitate the resumption of trade discussions between the two nations.

On Friday, US President Donald Trump terminated negotiations regarding a trade agreement, labeling the tax as a "blatant attack" and warned of increased tariffs on Canadian imports.

In reaction, Canada announced plans to enact legislation to abolish the tax and will cease the collection of payments that were set to be made on Monday.

White House economic advisor Kevin Hassett stated on Fox News on Monday that discussions between the North American partners would "definitely" resume as a consequence.

The digital services tax (DST) would have imposed a 3% fee on Canadian revenue exceeding $20 million for US tech giants such as Amazon, Meta, Google, and Apple.

Canada's finance minister, François-Philippe Champagne, announced that the tax would be revoked.

"The DST was introduced in 2020 to tackle the issue of many large tech companies operating in Canada potentially not paying taxes on revenues earned from Canadians," the statement indicated.

"Canada has consistently favored a multilateral agreement concerning digital services taxation," the statement further noted.

Numerous countries, including the UK, are revising their tax policies for large multinational technology companies, which serve millions of customers and advertisers globally, yet face substantial corporate tax liabilities due to their business structures.

It was projected that Canada's tax would result in costs exceeding C$2 billion ($1.5 billion; £1.06 billion) for the tech giants in its initial year, as the tax was set to be applied retroactively from January 2022.

In the realm of business, hesitation can be detrimental' - Canadian companies are looking for stability amid the tariff conflict.

Last year's federal budget projected that the tax would generate C$5.9 billion in total over the next five years.

Trump, who has developed a strong rapport with technology company leaders during his second term, has opposed such taxes.

He labeled Canada's policy as "outrageous," adding, "economically, we hold significant influence over Canada."

In a social media update on Monday, US Commerce Secretary Howard Lutnick expressed gratitude to Canada for abolishing the tax, stating it would have "been a deal breaker for any trade agreement with America."

Three-quarters of Canada's goods exports are directed to the US, amounting to over $400 billion annually, while Canada accounts for only 17% of US production.

In a statement, the American Chamber of Commerce praised the decision to eliminate the tax.

This is a constructive decision that allows both countries to focus on strengthening their economic partnership," said chamber president Rick Tachuk.

Canada's climbdown comes after a rollercoaster few months for US-Canada relations.

Shortly after taking office Trump threatened to impose sweeping new tariffs and even to annex the US's northern neighbour.

The antagonism helped propel Canada's Liberal Party, led by former central banker, Mark Carney, back into power.

Since then there appeared to be a rapprochement, with Canada and the US saying they aimed to agree new trade terms by 21 July.

Canada's digital services tax has been a long-time irritant for the US dating back to the previous Biden administration.

Ottawa had received repeated warnings that it could undermine the trading relationship and lead to retaliation.

But earlier this month, Champagne said Canada would move ahead with collecting the scheduled payments from big tech companies regardless of ongoing talks with the US.

"It is hard to overstate how badly the government managed the DST issue over the past five years," Michael Geist, a law professor at the University of Ottawa who has written extensively on the policy, wrote on his blog on Monday.

He pointed to, among other factors, making the tax retroactive and downplaying bipartisan concerns from US lawmakers.

There has been Canadian opposition to the tax as well, with business groups warning costs will be passed along to consumers.