Reeves defies Trump with tax on US tech giants

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Rachel Reeves has resisted pressure from Donald Trump to drop a tax on US technology companies, with the levy poised to raise billions for the Treasury.

A long-awaited review of the digital services tax (DST) – a 2pc charge on big tech companies’ revenues in Britain – said it would continue to operate in the absence of a global tax agreement.

It comes despite the White House threatening retaliation against countries employing DSTs, which it claims unfairly target American companies.

Mr Trump has said that American companies are being treated as a “piggy bank” and warned that countries imposing DSTs face substantial tariffs. “Show respect to America and our amazing tech companies or consider the consequences,” he wrote in August.

The DST has become increasingly important to the Exchequer amid the growth of big tech companies such as Meta and Google.

It applies to the UK revenues of large search engines, online marketplaces and social networks. In practice, it largely targets US companies that dominate the internet.

Official forecasts said it could raise £1.4bn a year by 2030, up from £380m when first introduced four years ago.

‘Unnecessary risks to trade’

Mr Trump has threatened tariffs on countries that impose DSTs, although the UK has yet to face any consequences.

The Treasury was forced to review the DST five years after introducing it, but the study published alongside the Budget said it would continue until a global tax agreement is reached.

It said it ensures “digital businesses make a contribution that reflects their economic activities in the UK”.

The DST was introduced as a temporary measure amid international negotiations on a global tax agreement that would charge companies based on where they did business. However, the Trump administration has opposed these reforms.

Matthew Sinclair, of the Computer & Communications Industry Association, a lobby group, said: “It is disappointing that the Government has not taken the opportunity presented by this review to look again seriously at the arbitrary and distortionary Digital Services Tax.

“With longstanding concerns in the US about taxes that single out multinationals headquartered there, this tax will continue to create unnecessary risks to trade and cooperation between two countries that otherwise have many interests in common as the largest global exporters of digital services.”

The Treasury’s review found that tech companies had passed on the costs of the DST to customers, such as advertisers and shoppers, but that this had not affected the growth of the digital economy. It said no avoidance or fraud had been found.

Mr Trump signed an executive order in February ordering US trade officials to reopen investigations into DSTs, although they have not advanced since.

Canada dropped its own tax in June amid pressure from the US.

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