Britain will not back down over the introduction of a new tax on large American tech firms, Chancellor Sajid Javid has told a meeting in Davos.
The US said it would consider retaliatory levies on UK car makers if the measure goes ahead.
The new tax is aimed at firms that do a lot of business in the UK but don’t pay taxes based on the size of their sales, including Google, Amazon and Facebook.
France this week agreed to suspend a similar measure.
French officials said they would wait to see if a multilateral solution could be found over the course of this year before it levied the tax. The US had threatened to impose new levies on French exports of wine, cheese and handbags.
Mr Javid said that while the UK would like to see an international agreement, he planned to go ahead with the introduction of the new multibillion pound tax, which is due to take effect in April.
Speaking as part of a panel discussion at the annual Swiss business meeting, Mr Javid described the new tax as “proportionate”.
US Treasury Secretary Steve Mnuchin, who was on the same Davos panel, replied that the UK and the US would “be having some private conversations” about the planned tax.
“We think the digital tax is discriminatory in nature… if people want to arbitrarily put taxes on our digital companies we’ll consider arbitrarily putting taxes on car companies.”
The UK government sees a new trade deal with the US as a high priority after Britain leaves the European Union at the end of this month. Former UK chancellor, George Osborne, told the BBC that as a result he thought the government would be wary of provoking the US over the new tax.
“It will be a very brave British government that walks into a trade war with the United States at the very moment when centrepiece of its economic policy is to strike a trade deal with the United States,” he told the Today Programme.
There has been growing pressure for a global agreement over how large multinational companies are taxed, with many governments unhappy that firms are able to register for tax purposes in places where they do a very small proportion of their business.
Several countries including the UK and France announced they would introduce unilateral changes to the way these firms, many of them US companies, are taxed.
However the US argues that American tech giants, including Apple, Amazon, Google and Facebook, are being unfairly targeted and has called for governments to wait for an international agreement.
This week France agreed to pause a new tax introduced last year after an angry response from Washington, including the threat of tariffs on exports of French products such as champagne and cheese.
The UK is under pressure to follow suit and delay its plans to levy tax worth 2% of the revenues of search engines, social media companies and online marketplaces, a change which would bolster public finances by £500m a year.
The Organisation for Economic Cooperation and Development (OECD), which is overseeing efforts to find a joint solution, has also urged national governments to wait for a multilateral agreement.
Secretary General Angel Gurria told the BBC that without that there would be a “cacophony and a mess” of 40 countries going their own way with “tensions rising all over the place”.
Mr Gurria said that the UK government should “absolutely hold fire and contribute to a multilateral solution”.
What is a digital sales tax?
France, along with several other European countries, wants to limit the tech giants’ ability to avoid taxes.
Many governments are concerned that US technology giants are avoiding taxes in the European Union. They argue taxes should be based on where the digital activity – takes place, not where firms have their headquarters. So if a UK consumer searches for a product or posts things online, and advertising is sold alongside those pages, the business should count – for tax purposes – as taking place in the UK.
But it has proven difficult to agree exactly how a new system would work.
Italy, Austria and Turkey are also considering imposing unilateral levies.
But trade officials in Washington say US firms are being unfairly targeted.
Mr Gurria is hosting a meeting between the French finance minister Bruno Le Maire and US Treasury Secretary Mr Mnuchin to confirm a ceasefire that should prevent a tit for tat trade war between the US and Europe.
But Mr Mnuchin, in an interview with the Wall Street Journal, warned “they’ll find themselves faced with President Trump’s tariffs. We’ll be having similar conversations with them”.
However, leaders of the largest tech companies say they would welcome reform of the tax system.
Microsoft President Brad Smith told the BBC “it does make sense for big tech companies to pay appropriate taxes”.
And Apple chief executive Tim Cook in Ireland on Tuesday supported the OECD’s effort to find a global solution.
Officials preparing US-UK trade talks have expressed concern that the US would raise its objections to a UK digital sales tax in trade negotiations.
The UK Treasury said: “We’ve committed to introduce our Digital Services Tax from April 2020. It will be repealed once a global solution is in place”.