The Government is offering to narrow the scope of its digital tax after the US threatened tariffs on nations that target its technology companies.
The compromise “would considerably ease the task of achieving a consensus-based solution and make a political agreement within reach this year,” according to a letter sent from finance chiefs from the UK, France, Spain and Italy to US Treasury Secretary Steven Mnuchin.
The nations are offering up a “phased approach” to taxing “automated” digital technology companies, according to the letter, Bloomberg reported on Thursday.
This suggests they would first look at search engines, social media networks and e-commerce and digital marketplaces like those offered by Amazon and eBay, which take a cut from sellers, but do not have a physical presence in the countries where the items are being sold, rather than consumer-facing businesses.
US officials have warned that the digital tax could be a sticking point in post-Brexit trade negotiations between the two countries.
The White House launched a “Section 301” investigation into digital taxes being introduced by the UK and several other countries earlier this month, saying it suspected that the levies would unfairly affect American companies.
Robert Lighthizer, the US trade representative, said it would probe the UK, Italy, Spain and the EU as a whole, among several other countries, saying the bloc’s plans for digital taxes would “unfairly target” American companies.
A similar investigation against France resulted in the US threatening tariffs on imports such as wine and cheese, and ultimately led Paris to back down and delay its tax.
The Organisation for Economic Co-operation and Development (OECD) has been working towards an international solution that would see technology multinationals spread their tax payments more evenly.
Despite negotiations spanning several years, the process has been delayed, with the US recently pulling out of talks.
Britain’s “digital services tax” came into force in April and will take 2pc of revenues from advertising and online marketplaces generated in the UK from next year. It is meant to raise £500m a year for the Treasury.
A Treasury spokesman said: “We have always been clear that our preference is for a global solution to the tax challenges posed by digitalisation, and we’ll continue to work with our international partners to achieve that objective.”