Canada has scrapped a tax on big US technology firms, just hours before it was due to come into force, to allow trade talks between the two countries to restart.
On Friday, US President Donald Trump called off negotiations over a trade deal, describing the tax as a “blatant attack”, and threatened higher tariffs on imports from Canada.
In response, Canada has said it is removing the tax, which should have come into effect on Monday.
The digital services tax (DST) would have meant US tech giants including Amazon, Meta, Google and Apple, facing a 3% charge on Canadian revenue above $20m.
Canada’s finance minister François-Philippe Champagne issued a statement saying the tax would be rescinded.
“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,” it said.
“Canada’s preference has always been a multilateral agreement related to digital services taxation,” the statement added.
Many countries, including the UK, are changing how they tax large multinational technology firms, which have millions of customers and advertisers around the world, but high corporation tax bills due to the way their businesses are structured.
It was estimated that Canada’s tax would cost the tech giants more than $2bn a year in total.
Trump, who has forged a close relationship with tech company owners in his second term in office, has pushed back against such taxes.
He described Canada’s policy as “egregious” adding “economically we have such power over Canada”.
Three quarters of Canada’s goods exports go to the US, worth more than $400bn a year, while Canada takes just 17% of US production.
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.