In tech tax ‘cave,' Trump and Carney may have both gotten what they wanted

Politico

a day ago

The White House is claiming Canadian Prime Minister Mark Carney 'caved' to President Donald Trump's trade demands over the weekend.
But in reality, the North American neighbors' dust-up over a contentious tax on tech companies gave both governments the political cover to walk back tax proposals that were deeply unpopular with powerful business interests at home.
For Trump and his administration, Canada's Sunday night announcement that it was dropping its Digital Services Tax, which it was supposed to begin collecting Monday, will save American tech titans like Google, Meta and Amazon billions of dollars. White House spokesperson Karoline Leavitt claimed at a press briefing Monday that it was the direct result of Trump's Friday threat to end all trade negotiations with Canada if it went forward with the tax.
'It's very simple. Prime Minister Carney in Canada caved to President Trump and the United States of America,' Leavitt told reporters. 'President Trump knows how to negotiate, and he knows that he is governing the best country and the best economy in this world, on this planet, and every country on the planet needs to have good trade relationships with the United States.'
Carney, meanwhile, argued Monday in remarks on Parliament Hill that, 'It doesn't make sense to collect tax from people and then remit them,' in the event the U.S. and Canada reach a broader trade deal this summer. 'So it provides some certainty.'
'It's part of a bigger negotiation,' Carney added. 'It's something that we expected, in the broader sense, that would be part of a final deal,' Carney said Monday on Parliament Hill.
Canadian businesses have long railed against their government's plans to impose what's known as a Digital Services Tax, with the Canadian Chamber of Commerce, Canada's largest business lobby, on Monday saying it 'would have fallen on Canadian consumers, businesses, and investors in the form of higher costs and hurt our economy at a critical time.'
David Pierce, vice president of government relations for the Canadian Chamber of Commerce commended the prime minister's decision to torpedo the digital tax, while crediting his government for successfully pressuring the Trump administration to ax a 'revenge tax' provision in Republicans' 'big, beautiful' tax bill that Congress is pushing to finalize this week.
The revenge tax provision, known as Section 899, targeted countries that imposed 'discriminatory' taxes on U.S. firms, and would have hit Canadian companies investing in the U.S. with tens of billions in taxes on their profits in the coming years, as retaliation for their digital tax.
That proposal had also faced concerted opposition from U.S. manufacturers and other business groups, who mounted a lobbying campaign in recent weeks to warn about the chilling effect it would have on foreign investors mulling purchases in the United States.
The National Association of Manufacturers, which represents thousands of companies, and other industry leaders, met with senior Treasury Department officials as recently as last week, and voiced support for changes to the 'revenge tax' provision to avoid 'punishing foreign-headquartered manufacturers investing in the U.S,' according to a planning note obtained by POLITICO.
Representatives of major pro-trade groups in the United States, including many companies that had also lobbied against Canada's digital tax, celebrated the decision to end the provision, and praised the Trump administration for its role in the process.
Gary Shapiro, CEO and vice chair of the Consumer Technology Association, which represents both tech giants and smaller device manufacturers, called the update a 'victory for innovation!'
'Thank you [President Trump] for standing firm against unfair attacks on [U.S.] tech. Now the U.S. and Canada can move forward together—stronger and more aligned in shaping the future,' Shapiro said in a statement Monday.
The National Foreign Trade Council, which represents major exporters, also praised the decision and asked other countries to follow Canada's example.
'The process that led us here sends a strong signal that this Administration is committed to ensuring non-discriminatory treatment of U.S. companies abroad, ' NFTC Vice President for Global Trade Policy Tiffany Smith said in a statement.
The chain of events that eventually killed both taxes began on Thursday with an X post by Treasury Secretary Scott Bessent that asked congressional Republicans to remove the 'revenge tax' from their sprawling tax and spending bill. Bessent cited an emerging agreement among some of the world's largest economies to exempt the U.S. from an international tax on multinational companies of a minimum 15 percent wherever they operated.
While the pact on a global minimum tax, struck during the Biden administration, was aimed at supplanting individual countries' digital services taxes, the G7 agreement Bessent announced did not address the digital taxes imposed by Canada as well as several countries in Europe and beyond. And Canada's government insisted in the aftermath that its tax remained firmly in place.
On Friday, Trump retaliated on Truth Social, saying he was 'terminating' all trade talks with Canada because of its digital tax, which would predominantly affect U.S. tech companies. Trump's post suggested that Canada's tax was a new policy, although it became law one year ago.
'We have just been informed that Canada, a very difficult Country to TRADE with … has just announced that they are putting a Digital Services Tax on our American Technology Companies, which is a direct and blatant attack on our Country,' Trump said in a Truth Social post.
On Saturday, the G7 finance ministers published a statement supporting the United States' request to be exempted from a 15 percent global minimum tax rate. It came one day after POLITICO reported that the deal had been reached.
Both the White House and Canadian officials confirmed that Carney and Trump spoke by phone Sunday evening about the tax, with the former adding that it was Carney who called Trump.
At 10:39 p.m. on Sunday, Finance Minister François-Philippe Champagne released a statement that said Canada was halting its Monday tax collection and would soon introduce legislation rescinding the DST. That will likely have to wait until sometime in September because Canada's Parliament is on its summer recess.
Carney said Monday that Champagne and Canada-U.S. Trade Minister Dominic LeBlanc spoke to their U.S. counterparts with an eye to restarting broader talks, with a self-imposed July 21 deadline for reaching a comprehensive trade deal.
'Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress and reinforce our work to create jobs and build prosperity for all Canadians,' Champagne said in the statement.
Pierce credited Carney, Champagne, LeBlanc and Kirsten Hillman, Canada's ambassador and chief trade negotiator to the U.S. 'for their leadership at a pivotal moment for our country.'
The Chamber added that the Canadian government's latest action 'moves us one step closer to a renewed, reliable trade deal with the U.S. administration.'