Washington announced the new 25 percent measures last night but immediately suspended the duties for six months to allow time for negotiations. President Biden is demanding the UK support his proposals for a global corporate minimum tax.
Britain has so far rejected the push from across the pond arguing it does not do enough to tax Silicon Valley firms.
Instead, the Treasury has introduced its own digital services tax which targets revenues generated in the UK by the likes of Facebook and Google.
US trade representative Katherine Tai said she was focused on “finding a multilateral solution” to digital taxes.
“Today’s actions provide time for those negotiations to continue to make progress while maintaining the option of imposing tariffs under Section 301 if warranted in the future,” she added as she threatened to implement the steep tariffs on UK imports unless it backed Mr Biden’s plan.
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Britain is not the only country being targeted by the US duties.
India, Spain, Italy, Turkey and Austria have all also been hit with the tariffs for introducing their own digital taxes which America claims discriminates against its tech giants.
Following the announcement about the tariffs, a Treasury spokesman defended the UK’s position.
They said: “Our digital services tax is reasonable, proportionate and non-discriminatory.
“It’s also temporary and we’re working positively with international partners to find a global solution to this problem.”
The new tariffs set the backdrop for President Biden and Boris Johnson’s first face-to-face meeting which will take place next weekend.
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The US’s global tax proposals are expected to dominate a meeting of G7 finance ministers taking place later this week.
On Friday and Saturday Chancellor Rishi Sunak will welcome his counterparts to London.
The White House is hoping to use the meeting to convince the other countries to back its global corporate tax plans.
In May, the US proposed a global minimum corporate tax of at least 15 percent to try to end a downward spiral of corporate tax rates and deter multinational firms from shifting profits to tax-haven countries.
The proposed minimum is lower than the Biden administration’s own proposals to raise the domestic corporate tax rate to 28 percent and impose a 21 percent minimum levy on overseas profits earned by US companies.
While Mr Sunak has rejected the US’s tax plans to date, he has said he is hopeful of an agreement this weekend.
Washington needs to “understand why fair taxation of tech companies is important to us,” he told the Mail on Sunday.
There’s a deal to be had, so I’m urging the US, and all of the G7, to come to the table next week and get it done.”