The UK government is to forge ahead with plans to introduce a digital services tax on tech companies, despite US backlash to France’s introduction of a similar levy.

The Treasury today published the draft details of its proposed two per cent tax on the revenues of social media platforms, online marketplaces and search engines.

The government said the tax would be aimed at “large multi-national enterprises” which make more than £500m in global revenues from digital activities, with more than £25 million of that deriving from UK users.

The government anticipates the measure will generate more than £440 million a year for Treasury coffers by 2022-23.

Business lobby groups have raised concerns that the tax could fall unfairly on small and medium sized enterprises in the UK.

The chancellor Philip Hammond announced last autumn that international efforts to co-ordinate a tax on tech giant revenues through the OECD and European Commission were moving too slowly, and that the UK would therefore press ahead with unilateral plans to introduce a UK tax.

France yesterday passed a similar law of three per cent on the revenue of tech titans such a Google and Facebook with an estimated return to the French government of €500 million per year. It will apply to companies with global revenue above €750 million, of which €25 million is made in France.

France has also been working with Germany on plans for a three per cent tax on EU advertising sales that would begin in 2021.

However, yesterday the US government threatened to hit back against the move, arguing that it unfairly penalises American tech companies. It has ordered an inquiry into the measure and has said it may respond with tariffs.

Announcing the publication of the draft legislation, Jesse Norman, financial secretary to the Treasury, said: “The UK has always sought to lead in finding an international solution to taxing the digital economy.

“'This targeted and proportionate Digital Services Tax is designed to keep our tax system in this area both fair and competitive, pending a longer term international settlement.”

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