The UK has agreed to phase out its tax on US tech giants such as Google and Facebook, averting the threat of retaliatory tariffs from the United States.
A deal between the two countries will keep the digital services tax in place until 2023, when it will make way for a newly agreed global tax system.
The UK, US, Austria, Britain, France, Italy and Spain all reached an agreement on Thursday on the transition from national digital services taxes contested by Washington to a new global tax deal.
The agreement was reached after 136 countries agreed on a plan under which large multinational companies pay tax in the countries where they do business, and committed themselves to a minimum 15% corporation tax rate.
The UK’s digital services tax was introduced in April last year and charges 2% on the gross revenues of the digital titans.
The Treasury said on Thursday that it had convinced Washington not to levy tariffs in retaliation for the tax, which ultimately hits many US companies hardest.
But in return it has agreed to remove the tax in time in favour of the global solution. This “was always the UK’s intention”, the Treasury said.
“The UK has been spearheading the push for an international solution to the challenge of taxing technology multinationals for nearly a decade, with the chancellor making securing a global agreement a key priority of the UK’s G7 presidency,” the department said. “The credit system provides a fair and sustainable solution.”
Discussions are set to continue in the coming months as world leaders figure out how to implement the tax.
The chancellor, Rishi Sunak, said: “Following the landmark deal achieved earlier this month, I am delighted we have agreed a way forward on how we transition from our digital services tax to the newly agreed global tax system.
“This agreement means that our digital services tax is protected as we move to 2023, so its revenue can continue to fund vital public services.”