The UK government says it will keep the digital services tax (DST) until there is an international framework for taxing tech giants, contradicting reports that it planned to drop the tax to appease the US.
The levy, which applies to tech companies making more than £500 million in global revenue, was quietly introduced in chancellor Rishi Sunak’s 2020 budget, despite fears that it would trigger US retaliation and potentially jeopardise a post-Brexit trade deal.
The levy hits US technology companies such as Facebook, Amazon, and Google – a coterie widely considered to scrimp on taxes by exploiting legal loopholes. The US has pushed back against the tax, causing France to pause plans for its own DST after America threatened retaliatory tariffs on French goods.
The Mail on Sunday reported at the weekend that Sunak planned to ditch the tax because it was acting as an impediment to US trade talks being conducted by international trade secretary Liz Truss.
The newspaper reported that sources said because the tax only raises around £500 million annually, it wasn’t worth the potential impact on a US trade agreement.
But the Treasury denies this, saying that the tax is already written into law.
A HM Treasury spokesperson said: “The digital services tax is a proportionate measure that ensures that tech firms pay their fair share of tax in the UK.
“We’ve been clear it’s a temporary tax that will be removed once an appropriate global solution is in place – and we continue to work with our international partners to reach that goal.”
In June, Rishi Sunak signed a letter alongside finance ministers in France, Italy and Spain that said tech giants need “to pay their fair share of tax”, noting that many had become even more profitable during the coronavirus crisis.
Ongoing international talks are focused on how online sales should be taxed, with Sunak floating an idea for a two per cent levy on all goods sold on the internet by online retailers – with the potential to raise up to £2 billion for the public purse.
The US has abandoned negotiations for finding a multilateral solution to taxing tech giants, that were overseen by the Organisation for Economic Cooperation and Development (OECD). The US trade representative Robert Lighthizer told Congress that other nations had ganged up to “screw America”.
Secretary of State for the Department for Digital, Culture, Media and Sport Oliver Dowden said in July that in an upcoming digital strategy for the UK, “tech must play a leading part in our recovery”. “Our clear priority must be growth, using tech to power us out of the recession, to drive productivity and create jobs in all parts of the tech industry, region by region, and in all parts of our economy.”