The US has agreed not to retaliate against the UK’s tax on internet giants such as Facebook and Google.
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 tax was introduced in April 2020 and charges 2% on the gross revenues of the digital titans.
The Treasury said on Thursday that it had managed to convince Washington not to levy tariffs in retaliation for the tax, which ultimately hits many American 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.
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.”
Earlier this month, 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 new agreement seeks to provide easy ways for companies to plan their businesses in a way that reduces taxes by spreading them out over several countries.