First announced in 2018, the new tax will impact search engines, social-media platforms and online marketplaces.
The tax only applies to companies with more than $650 million in total revenue, about $32 million of which comes annually from British consumers.
Industry leaders like Google, Facebook and Amazon are expected to be the hardest hit by the policy change.
In a statement, the British government defended the tax as a means of more fairly realigning the interests of U.S. companies and British citizens.
“Under the current international tax framework, the value businesses derive from user participation is not taken into account when allocating the profits of business between different countries,” Her Majesty’s Revenue and Customs (HMRC) stated this week. “This measure will ensure the large multinational businesses in-scope make a fair contribution to supporting vital public services.”
Earlier this year, the U.S. government said it would not take the UK’s decision sitting down.
During a visit to Davos, U.S. treasury secretary Steven Mnuchin said the UK could expect to be hit with a levy on car imports in retaliation for the digital sales tax.
British policymakers don’t see the digital services tax as a long-term solution.
“The government still believes the most sustainable long-term solution to the tax challenges arising from digitalization [sic] is reform of the international corporate tax rules,” the HMRC said.
As such, the government said it strongly supports G7, G20 and OECD discussions on long-term reform.
As of Wednesday, no U.S. company had formally responded to the new tax.