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UK presses ahead with Digital Services Tax despite threat of US backlash

The UK government is pressing ahead with plans to introduce a new two per cent tax on tech companies’ revenues despite the threat of US retaliation.

The proposals were detailed in the Treasury’s latest finance bill on Thursday (11 July) and came as Donald Trump threatened to investigate France’s own tech tax plans.

TechUK warned that the UK’s proposals, which would come into effect in April next year, could provoke a similar response.

“The US government has said that this proposal risks creating new non-tariff barriers to trade,” said Giles Derrington, the trade body’s policy director. “There is a real risk that the Government is putting the UK at risk of retaliation from the US Government that would hurt British businesses and consumers.”

While the proposals could trigger an investigation by Washington, they could also scupper the UK’s chance of securing a trade deal after Brexit.

Announcing plans for the tax last year, Philip Hammond said it would be “carefully designed to ensure it is established tech giants rather than our tech startups that shoulder the burden”.

The Treasury said the tax would be derived from “the revenues of search engines, social media platforms and online marketplaces which derive value from UK users”, indicating it would be directed at companies such as Facebook, Twitter, Google and Amazon.

Derrington added: “There is no doubt that the system for international taxation needs to evolve to deal with a digitising economy. To do that we need smart and innovative solutions developed at a global level. As a revenue tax targeted on a narrowly defined set of companies, the Digital Services Tax is not one of those smart measures. It risks making investing in the UK less attractive, increasing costs for consumers and will likely hinder progress towards a long term global solution.”