Canada rescinds digital tax to restart stalled US trade talks
OTTAWA—Canada scrapped its digital services tax targeting US technology firms late on Sunday, just hours before it was due to take effect, in a bid to advance stalled trade negotiations with the United States.
Canadian Prime Minister Mark Carney and US 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.
Officials have suggested most deals could now be done by the September 1 Labor Day holiday.
Trump abruptly called off trade talks on Friday over the tax targeting US 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 US-Canada relations back into chaos after a period of relative calm.
The breakdown in trade talks comes after the two leaders met at the G7 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 percent 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 US technology firms, including Amazon, Meta, Alphabet’s Google and Apple, among others.
Monday collection will be halted, the Canada’s finance ministry statement said, and Finance Minister François-Philippe Champagne will bring forward legislation to rescind the Digital Services Tax (DST) 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.”
Stocks index futures rose after the news the digital tax will be rescinded and the bullish sentiment spilled over into Asian markets.
Canada is the second-largest US trading partner after Mexico, and the largest buyer of US exports. It bought $349.4 billion of US goods last year and exported $412.7 billion to the US, according to US 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.
Metal duties
Canada had escaped Trump’s broad tariffs imposed in April but faces 50 percent duties on steel and aluminum.
Shares indices rose in Asia on Monday as the revival of trade talks between the United States and Canada helped risk sentiment.
The dollar however dipped on concerns US jobs data could show enough weakness to justify larger rate cuts.
Investors were also keeping a wary eye on the progress of a huge US tax-cutting and spending bill slowly making its way through the Senate, with signs it may not make it by Trump’s preferred July 4 deadline.
The Congressional Budget Office estimated the bill would add $3.3 trillion to the nation’s debt over a decade, testing foreign appetite for US Treasuries.
There was no doubting the demand for the US tech sector and megacap growth stocks including Nvidia, Alphabet and Amazon. Nasdaq futures rose another 0.4 percent, while S&P 500 e-minis added 0.3 percent.
Euro Stoxx 50 futures rose 0.3 percent, while FTSE futures were flat and DAX futures gained 0.4 percent.
The bullish sentiment spilled over into Japan’s Nikkei which rose 1.0 percent, while South Korean stocks gained 0.7 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.2 percent.
Chinese blue chips edged up 0.1 percent, as surveys showed manufacturing improved slightly in June while service activity picked up.
