Canada will scrap tax that prompted Trump to suspend trade talks

The government said on Sunday night that it would cancel its tax on American technology companies, handing a victory to the Trump administration

By Matina Stevis-Gridneff

 

Canada’s government announced on Sunday night that it would cancel a tax on American technology companies that led President Trump to suspend trade talks between the two countries, handing an important victory to Trump. 

Prime Minister Mark Carney discussed the decision to scrap Canada’s digital services tax with Trump on Sunday, Carney’s office said. In a sign that trade talks were resuming, Canada’s finance minister, François-Philippe Champagne, spoke with the United States Trade Representative, Jamieson Greer, on Sunday, according to Carney’s office. 

The tax, which had been due to take effect on Monday, became the latest flashpoint in difficult negotiations between the United States and Canada on Friday, when Trump said the talks were off. On social media, Trump called the levy a “blatant attack” and said he would inform Canada within a week about the duties “they will be paying to do business with the United States of America.” 

Forty-eight hours later, the Canadian government folded, announcing it would not go ahead with the tax. The finance ministry said the government had decided to “rescind the Digital Services Tax in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.” 

Technically, the cancellation of the tax needs to be approved in legislation, so until that time, the government is suspending its collection. Politically, canceling the tax should be a simple matter for the government. 

The White House did not immediately respond to a request for comment. 

Canada’s 3 percent digital services tax has been in place since last year, but the first payments were only due beginning on Monday. Because the tax is retroactive, American companies were preparing to turn over roughly $2.7 billion to the Canadian government, according to a trade group for large American tech companies. 

US officials from both parties have long chafed at taxes like the one Canada has imposed, calling them unfairly targeted at services provided by American companies like Google, Apple and Amazon. 

Carney said that the cancellation of the tax would put the talks back on track with the goal of reaching an agreement on July 21. 

The Trump administration has imposed a 25 percent tariff on most goods from Canada, with which it has a free-trade agreement together with Mexico.Like other countries, Canada is also subject to a 50 percent US tariff on its exports of steel and aluminum.

 

Talks on reaching a new trade deal are particularly crucial for Canada, whose economy is heavily dependent on exports to the United States. Canada is America’s second-largest trade partner. 

“In our negotiations on a new economic and security relationship between Canada and the United States, Canada’s new government will always be guided by the overall contribution of any possible agreement to the best interests of Canadian workers and businesses,” Carney said in a written statement.