The US has threatened to hike taxes on car companies if Boris Johnson presses ahead with plans for a levy on tech giants such as Google and Facebook.
In an escalation of tensions, Steven Mnuchin, Donald Trump’s treasury secretary, said the US considered the UK’s proposed digital services tax to be “discriminatory” and warned that Washington could impose retaliatory taxes on the automobile industry.
But chancellor Sajid Javid said the 2 per cent levy would be introduced in April as a temporary measure until an international agreement is in place on how to deal with online giants.
Speaking alongside Mr Javid at the World Economic Forum in Davos, Mr Mnuchin said Donald Trump would lobby the prime minister over the proposed tax and claimed the pair had ”an excellent relationship”.
The US and France have sealed a truce over Emmanuel Macron’s plans to introduce a similar measure after Washington responded with a threat to slap punitive tariffs on French cheese and wine.
Mr Mnuchin told the audience: “We have been pretty clear that we think the digital tax is discriminatory in nature, there’s an OECD process that we are participating in.
“International tax issues are very complicated, they take long times to look at and if people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies.”
The UK has been urged to hold back on the tax by the Organisation for Economic Co-operation and Development (OECD), which called for time to allow the international approach to succeed.
Several governments are considering levies to ensure the world’s largest digital firms pay tax where they are used, rather than just where there headquarters are based.
Google has come under fire previously for shifting profits to Bermuda to reduce its foreign tax bill.
Mr Javid told an audience at the Swiss ski resort: “We plan to go ahead with out digital services tax in April.
It is important – as we said at the time when we first introduced it to parliament and legislated for it – it is a proportionate tax.
“It is a tax that is deliberately designed as a temporary tax so it will fall away once there is an international solution.”
The row comes as the UK was poised to begin post-Brexit trade talks with the US and the EU at the same time – once it officially leaves the bloc on 31 January.
Mr Javid insisted that an EU trade deal could “absolutely” can be done’ by the end of 2020 on goods and services, despite alarm from Brussels that the 11-month timetable is too tight to hammer out such a complex agreement.
At Davos, Mr Mnuchin joked to Mr Javid that he was “disappointed” the UK will negotiate parallel trade deals with the US and EU. “I thought we’d go first,” he said.
Brexiteers have long touted the prospect of a lucrative US trade deal as one of the major benefits of leaving the EU