This is why the UK’s tech tax still riles Washington
The UK and US have trumped a new trade framework aimed at unlocking growth between the two allies, but one key irritant remains notably unresolved: Britain’s tech tax or Digital Services Tax (DST).
The two per cent levy, introduced in 2020 under Boris Johnson, continues to rankle American officials, particularly because it disproportionately affects the most prominent US tech firms like Amazon, Google, and Meta.
While the agreement announced on 8th May included several headline-grabbing concessions – including the lifting of Trump-era tariffs on British steel and aluminium and improved market access to UK carmakers – it conspicuously left the DST untouched.
An ‘unfair’ burden on American tech?
The tension over the DST is long-standing and bipartisan in Washington.
Both the Trump and Biden administrations have called the UK’s tech tax discriminatory, arguing it unfairly targets the revenue streams of American firms, without similarly impacting their foreign counterparts.
Former White House trade adviser Peter Navarro didn’t mince his words this week, likening the DST to a “bad virus” that originated in Europe and spread globally, undermining US tech interests abroad.
Indeed, the UK is not alone. Similar taxes have been introduced by countries like France, Italy, and Spain, all of which have faced resistance from the US government and lobby groups.
For American officials, the concern is not just about lost revenues, but the precedent these national-level taxes could set at a time when global negotiations on how to tax digital companies remain unresolved at the OECD level.
Tech tax and no tech agreement
Despite the dispute, the broader trade deal did not include a commitment to explore a future digital trade agreement.
The UK government says this would reduce export red tape for British firms trying to enter the US market, a move it claims could be a major boost for the UK economy.
But critics argue that the foundation for any deeper digital trade pact remains shaky without resolving the DST dispute.
Jake Colvin, president of US-based National Foreign Trade Council, echoed that sentiment, calling it “extremely disappointing” that the new deal didn’t address what he described as a discriminatory tax policy.
Strategic stalemate
For now, both sides appear to be playing a long game.
The US is keeping pressure on Britain to rethink or phase out the tax, while the UK is using it as leverage in broader trade negotiations.
One British official, speaking anonymously, admitted Washington continues to push for changes, but acknowledged there’s no agreed process for resolving the issue.
That may change as global tax negotiations progress.
In the meantime, the DST remains a symbol of unresolved transatlantic tensions – a sticking point in what’s otherwise being touted as a “pro-growth” digital partnership.