Canada rescinds digital services tax after Trump's trade threat

Canada says it plans to rescind a digital services tax that would have hit U.S. tech companies, bowing to President Trump’s threat to cancel trade talks unless the levy went away.

The Canadian Department of Finance said late Sunday it decided to scrap the tax in “anticipation of a mutually beneficial comprehensive trade arrangement with the United States.”

Ottawa beat a retreat 48 hours after Mr. Trump, in a social media post, said he was canceling trade talks with his northern neighbor because Canada planned to collect on the digital tax.

The tax charges 3% of digital-services revenue above $14.6 million that a company brings in from Canadian users in a given year.

Canadian Prime Minister Mark Carney said he would work with Mr. Trump to pursue a trade agreement by July 21.

“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,” Mr. Carney said.

The Canadian government said it would no longer collect the tax as planned on Monday, and will bring forward legislation to formally rescind it.

In the U.S., Mr. Trump will view Ottawa’s decision as vindication for his hardball tactics with Canada.

Mr. Trump called Canada’s tax “egregious” and threatened to name a tariff amount on Canadian goods instead of negotiating as planned.

The president is also upset with the European Union, which has put forth a similar tax.

Previously, Mr. Trump threatened to put a 50% tariff on the EU, which restarted negotiations.

Mr. Trump shocked the world with his “Liberation Day” plan in April to charge high levies on goods from around the world. He imposed a blanket tariff of 10%, but heftier levies were paused for 90 days to allow space for talks.

The White House is racing against a July 8 deadline to set tariff amounts for trading partners. Mr. Trump could extend the deadline, or simply set a tariff amount for each country.