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The UK is working on options to mitigate the impact of the digital services tax on US technology companies to ensure tariff deals with the White House after the Trump administration played hardball on the issue.
People explain the UK and the US debate as the UK government is open to a variety of possibilities, including a 2% change in tax rates and changes in its characteristics.
People added that taxes could continue to earn substantial revenue from the Treasury, even if some of its functions change.
Such changes include exempting some sectors from collection, significantly outweighing the increase in tax-exempt allowance on revenues by £25 million, or applying taxes to profits rather than revenues.
All companies that run online markets, search engines and social media companies are all subject to tax, whether they make a profit or not in the UK.
Fierce negotiations are underway with President Donald Trump’s team, and the UK will see if it is able to dodge the US global “mutual” tariffs scheduled to be announced on April 2nd.
Keir starmer, UK Prime Minister Trump spoke on Sunday night to discuss “progress” in negotiations on economic and trade transactions, Downing Street said Monday.
Last week, UK business and trade secretary Jonathan Reynolds was told that he had to change tax systems to acquire sculptures from the US global mutual tariffs.
“When the UK team arrived in Washington, they said: “Let’s talk about economic transactions that involve closer cooperation between technology and AI,” one person explained the discussion. “The US said it didn’t care about them and demanded that the UK know what it could offer in terms of tax.”
UK government officials have confirmed that tax changes are a major US demand. The Ministry of Finance declined to comment.
Trump argues that VAT and digital services taxes imposed by European countries, including the UK, are discriminatory against US companies.
The UK’s VAT regime is unlikely torn up as it raised a massive £169 billion for the cash-bound Treasury last year. In contrast, the Digital Services Tax is expected to raise approximately £800 million between 2024-25.
The flat 2% tax, which hits tech giants including Alphabet, Meta and Amazon, applies to companies with global revenues of over £500 million and revenues of over £205 million, derived from the UK.
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Prime Minister Rachel Reeves defended tax principles on Monday. “The Digital Services Tax is extremely important,” she said. “It brings about £800 million a year and guarantees that businesses will pay taxes in the country they operate.”
Reeves suggested it would not be completely discarded, adding:
Tax expert Dan Niedel said he believes that taxes should be abolished because it was a “performance” and didn’t raise much funds.
“The argument that it is discriminatory is kind of true,” he said. He said the collection was merely targeting sectors that the US has a globally special strength.
He added that the US saw taxes as discriminatory because it was applied to income rather than profits. “You can be (automobile manufacturer) BMW or (Champagne House) Laurence Perrier and you are not subject to taxes on your income,” he said. “But if you’re an internet company, you are.”
