The United States has said that Canada’s prime minister Mark Carney “caved” to demands from the White House after his government abruptly scrapped their digital services tax on US technology companies, which was set to go into effect on Monday.
“It’s very simple. Prime minister Carney and Canada caved to president [Donald] Trump and the United States of America,” press secretary Karoline Leavitt said in a daily briefing.
“The president made his position quite clear to the prime minister and the prime minister called the president last night to let the president know that he would be dropping that tax.”
Carney told reporters on Monday his decision to backtrack on a controversial tax was meant to revive trade negotiations with the United States after Trump halted talks on Friday, alleging a Canadian effort to coax payments from American tech heavyweights operating in Canada was a “direct and blatant attack on our country”.
On Monday, White House economic adviser Kevin Hassett told Fox News that Canada’s decision “absolutely” meant both sides would resume talks.
In an announcement late on Sunday, Carney said key talks with the administration would resume now Canada had repealed the levy, which applied to US tech companies such as Meta, Amazon, Google parent Alphabet, Uber and Airbnb.
Canada’s finance ministry said Carney and Trump would resume trade negotiations in order to agree a deal by 21 July.
The tax was first announced in 2020 and was designed to remedy the fact that many large American technology companies operating in Canada did not pay tax on revenues generated from Canadians.
The tax has long been an irritant for Donald Trump, and he used that frustration Friday to “terminat[e] all discussions on trade” with Canada, calling the digital services tax “a direct and blatant attack on our country”.
Canada’s decision to cancel the tax comes as the US and Canada are locked in negotiations over a trade and security deal. Carney wants tariffs imposed by the Trump administration removed as part of an agreement.
Currently, Canada faces tariffs of 50% on steel and aluminum exported to its largest trading partner and a 25% on tax on cars, as well as blanket tariffs on all other goods exported outside the US-Mexico-Canada trade agreement.
Canada was set to collect a 3% levy on digital services by major tech companies. The first payments were due on Monday and large American companies were expected to pay more than US$2bn to Canada’s federal government – a fee retroactive to 2022. Over a five-year period, the tax was expected to raise more than US$7bn.
Hassett said Trump had raised the tax issue with Carney at the G7 summit in Kananaskis, Alberta earlier this month.
“One of the things that the president asked for was that they would take the … tax off. It’s something that they’ve studied, now they’ve agreed to and, for sure, that means that we can get back to the negotiations.”
US commerce secretary Howard Lutnick thanked the Canadian government for dropping the tax as others in the administration rushed to credit Trump for the policy shift.
“Thank you Canada for removing your digital services tax, which was intended to stifle American innovation and would have been a deal-breaker for any trade deal with America,” Lutnick posted on social media.
The walkback suggests the “Canadian government misreading the tech sector has become a hallmark of its policy”, according to Michael Geist, a law professor at University of Ottawa and the Canada Research Chair in internet and e-commerce law.
“It is hard to overstate how badly the government managed the [digital services tax] issue over the past five years,” he wrote in a blogpost, adding the move to pursue the tax “alienated allies” and “solidified opposition, and continually downplayed the concerns of successive US presidents and members of Congress from both sides of the aisle”.
Geist said moving forward with the tax left Canada in a “no-win situation” and suggested the government had “overplayed its hand”.
“Unfortunately, the government has too often viewed tech primarily as a source of revenue for policy projects – the proverbial ‘make web giants pay’ – while overestimating the attractiveness of the Canadian market and underestimating the risks of costly regulation,” he wrote. “Canada desperately needs a tech regulation reset. Perhaps the embarrassment of walking away from $7bn will provide the wake-up call.”
Business groups praised the move.
“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 a statement, adding the end of the tax “moves us one step closer to a renewed, reliable trade deal” with the United States.