UK looks at cutting digital services tax to avoid Trump tariffs

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The UK is in discussions with the US about slashing or abolishing altogether Britain’s digital services tax before April 2 as it seeks to avoid the worst of US President Donald Trump’s global tariffs.

US ambassador Lord Peter Mandelson told the Financial Times that the “tax itself is under discussion”, and signalled that a variety of options were on the table other than scrapping it entirely.

People briefed on the discussions said that the options being examined by the UK Treasury depended on whether the London received a clear offer from Washington to exempt the Britain from punitive tariffs.

Trump has vowed to impose “reciprocal” tariffs on US trading partners from April 2, targeting not just countries that have tariffs on American imports, but also other taxes that affect US companies.

Britain’s digital services tax, which hits US tech giants including Alphabet, Meta and Amazon, is expected to raise some £800mn in 2024-25, at a time when the Treasury is trying to shore up the public finances.

Liberal Democrat leader Sir Ed Davey has warned the UK government not to cave into US demands by lowering the digital services tax, claiming such a move would be “giving into Trump bullying”.

Technology secretary Peter Kyle told the FT that discussions were currently at a “very early stage” but that people “will start to see very soon the fruits of those discussions”.

“The digital services tax is on the table but there are no conclusions yet,” said one official briefed on the negotiations. “We have to make sure everyone is happy.”

Jonathan Reynolds, UK business and trade secretary, held talks in Washington this week to explore a possible deal. His allies said they were looking to move at pace to secure an agreement.

Kyle and Mandelson were on the west coast of the US this week meeting tech bosses, who want to see the digital services tax rolled back. Mandelson wants to forge a UK-US tech pact, including collaboration on the development of artificial intelligence.

The digital services tax was introduced by the former Conservative government in April 2020 to ensure that global digital businesses paid tax that reflected the value they derive from UK customers.

The flat rate 2 per cent tax is applied to companies that have global revenues in excess of £500mn, and is applied on revenues derived from the UK.