Canada has eliminated a tax on major US technology companies, just before it was scheduled to take effect, in order to resume trade negotiations between the two countries.
On Friday, US President Donald Trump cancelled discussions on a trade deal, calling the tax a “blatant attack,” and threatened to impose higher tariffs on imports from Canada.
In response, Canada has announced that it will remove the tax, which was supposed to go into effect on Monday.
The digital services tax (DST) would have required US tech giants such as Amazon, Facebook, Google, and Apple to pay a 3% fee on Canadian revenue over $20 million.
Canada’s finance minister, François-Philippe Champagne, issued a statement stating that the tax would be revoked.
“The DST was introduced in 2020 to address the fact that many large technology companies operating in Canada may not pay taxes on revenue generated from Canadian consumers,” the statement said.
“Canada’s preference has always been for a multilateral agreement on digital services taxation,” the statement added.
Several countries, including the UK, are changing their approach to taxing large multinational technology companies, which have millions of customers and advertisers worldwide but pay high corporate taxes due to their business structures.
The tax was expected to cost tech giants more than $2 billion per year in total.
Trump, who has developed a close relationship with tech company owners during his second term in office, has opposed such taxes.
He described Canada’s policy as “outrageous,” stating that “economically, we have significant power over Canada.”
Three-quarters of Canada’s goods exports, worth more than $400 billion per year, go to the US, while Canada only receives 17% of US production.
Canada’s reversal comes after a tumultuous few months in US-Canada relations.
Shortly after taking office, Trump threatened to impose sweeping new tariffs and even annex the US’s northern neighbor.
This hostility helped propel Canada’s Liberal Party, led by former central banker Mark Carney, back into power.
Since then, there has appeared to be a reconciliation, with Canada and the US stating their intention to reach new trade terms by July 21.