UK’s Big Tech Tax Survives Trump’s Trade Deal — But For How Long?

Trump could quash decades of work to make tech companies pay their fair share

While a new Pope stole the spotlight, a “historic” trade deal announced yesterday between the US and the UK left Britain’s Big Tech tax intact, despite Donald Trump’s fierce criticism.

Since 2020, the UK has imposed a Digital Services Tax (DST), collecting 2% of the UK-derived revenue from companies like Amazon, Google, Uber, Ebay and Meta. Social media, search engines or online marketplaces have to pay the tax if they receive more than £500m in global revenues and £25m from UK users annually. The tax is expected to raise over $1 billion per year for the British treasury.

Donald Trump has always criticised these taxes, saying they were “designed to plunder American companies”. Once he was back in the White House for the second time, Trump launched an investigation on taxes and fines levied on American companies and determine whether to take remedial action.

As the two countries met to work on a trade agreement in recent weeks, many in the UK feared this tax would be on the chopping block.

Instead, Trump reduced tariffs on British cars and eliminated them on UK steel and aluminium. In return, the UK agreed to lower tariffs on US beef and ethanol imports. The big tech tax was left untouched. For now at least.

This was the first of many deals which Trump promised would follow after what he called “Liberation Day” - when he announced sweeping tariffs on more than 60 countries.

British Prime Minister Keir Starmer said discussions will continue, so pushback on Britain’s DST could come at a later stage.

Trump’s trade adviser Peter Navarro also warned that negotiations on digital taxes were still ongoing.

“Digital taxes has spread like a bad virus around the world, but it started in Europe, and it basically targets American companies, I can say it in no other way,” Navarro added.

Digital services taxes are also likely to be discussed in other deals Trump is negotiating, including with the EU.

Besides the UK, another 19 countries are enforcing or considering similar taxes on big tech companies, in an attempt to ensure that they pay their fair share. This includes Italy and France, which tax 3% on revenue.

Multi-country efforts to tax these companies together have not yet yielded results. The EU has been discussing variations of this idea for the last 10 years. The Organisation for Economic Cooperation and Development (OECD) and the Group of 20 (G20) have also tried to reach multinational agreements.

In a Substack article earlier this week, I calculated that if the US were to tax the top global companies 3% of revenue and 1% of their market value, the government could raise over $1.4 trillion. If divided among American citizens equally would amount to almost $5,000 each per year (or $15,000 if this was given only to the lowest earning 100 million Americans).

This type of taxation could form the basis of a Universal Basic Income or an AI/data Dividend which people like Pete Buttigieg and Andrew Yang have advocated for.

As discussions on UBI and AI Dividends pick up due to skyrocketing wealth inequality and fears of millions of job losses, it’s good to keep track of the efforts by governments around the world to tax big tech and hold it accountable for its actions.

Just this week, the EU fined Apple €500 million and Meta €200 million for breaching its new digital rules. Apple because of its non-competitive practices on the App Store and Meta because of its “pay or consent” advertising model, which requires that European Union users pay to access ad-free versions of Facebook and Instagram.

This is different from imposing a tax on them, but it shows that there is a growing appetite to regulate big tech and enforce financial penalties.

Still, there are justified fears that Trump will soon continue to turn back the clock on years of efforts to tax these companies.

In 2021, nearly 140 countries - including the US - struck a deal to tax multinational companies a 15% minimum global tax. But Trump withdrew from this deal on his first day in office, after prominently hosting several of the tech world’s billionaires at his inauguration.

“The U.S. has effectively withdrawn from global tax cooperation, jeopardising a decade of painstaking negotiations and casting uncertainty over the future of tax multilateralism,” the International Centre for Tax and Development reported.

However, some argue that this is a miscalculation by the Trump administration. Alex Cobham, chief executive at the Tax Justice Network said it could give the rest of the world “an even greater chance of ending global tax abuse”.

“While previous US presidents finessed a double game, promising to cooperate on tax but never doing so, Trump has clumsily given the game away, first pulling the US out of its own sham global tax reforms last month, and now pulling the US out of the most important tax negotiations of our lifetime,” Cobham said.

Negotiations have begun for the United Nations (UN) Framework Convention on International Tax Cooperation, which aims for tax cooperation to close gaps in existing tax systems that prevent many countries from collecting much-needed tax revenues.

Tove Maria Ryding, tax Coordinator at the European Network on Debt and Development, put it this way: “The convention is going to include tax to multinationals so sooner or later the U.S. will have to cooperate.”

Watch this space for more updates on the international battle to tax big tech.