OTTAWA – Canada, in an attempt to advance trade talks with the U.S, decided to back off from imposing its digital tax targeting U.S. technology firms. The development took place late on Sunday, a few hours before the tax was to take effect.

The Canadian finance ministry stated that Canada and the United States will agree to a deal by July 21 as trade talks resume between Prime Minister Mark Carney and President Donald Trump.

Earlier on Friday, President Trump canceled trade talks with Canada, calling the digital tax a “blatant attack” as the tax targeted U.S. technology firms. President Trump reiterated his demand to introduce new tariffs on Canadian goods.

What is Canada’s digital tax?

Canada’s planned digital tax is 3% of the revenue from digital services that a firm earns from Canadian users beyond $20 million in a calendar year, with retroactive payments starting from 2022.

The U.S. tech giants that were to be affected include Amazon, Meta, Alphabet’s Google, and Apple, among several others.

Canada is the second-largest trading partner of the U.S., following Mexico, and the largest buyer of U.S. exports. Last year, it purchased $349.4 billion in U.S. goods and exported $412.7 billion to the U.S., according to data from the U.S. Census Bureau.

The Biden administration requested trade dispute settlement consultations regarding a tax in 2024, arguing that it violates Canada’s obligations under the North American trade agreement. While Canada had avoided the broad tariffs imposed by Trump in April, it is currently facing a 50% duty on steel and aluminum imports.