Canada scraps digital services tax; U.S. reopens trade talks

Canada’s finance ministry on Sunday said it would rescind the country’s digital services tax to reopen trade negotiations with the United States. The tax required large companies, including social media giants, to pay out 3% of their revenue from digital interactions with Canadian users. Tax authorities would not collect revenues on June 30 as planned, and the government would put forward legislation to officially rescind the law, the ministry said.

Why the change? U.S. President Donald Trump on Friday said the United States would immediately terminate trade negotiations with Canada due to the tax. He said he would release new tariff rates for Canada within a week.

But since Canada reversed course on the tax, trade negotiations will resume, according to the Canadian Finance Ministry. Prime Minister Mark Carney and Trump intend to reach an economic and security agreement by July 21, according to the finance ministry’s statement.

U.S. Commerce Secretary Howard Lutnick on Monday thanked Canada for the change. He said the tax would have stifled American innovation and been a deal breaker for any trade deal.

Dig deeper: Read my report on Canada’s new economic development law, meant to reduce dependence on the United States.