An argument is brewing between the U.K. and U.S. over whether the British government should press ahead with plans to introduce a digital sales tax in April.
Global tech giants including Google, Apple, Facebook and Amazon are set to face a new 2% tax on money made from their search engines, social media platforms and online marketplaces serving people in Britain.
The U.K. has argued that current tax rules do not fairly match where digital profits are taxed, to the region where the income is derived.
Speaking during the World Economic in Davos, Switzerland, U.S. Treasury Secretary Steven Mnuchin warned that countries who introduced a digital tax could "find themselves faced with President Trump's tariffs."
Speaking at a CNBC-moderated panel during Davos on Wednesday, Mnuchin doubled down on the threat.
"If people want to just arbitrarily put taxes on our digital companies, we will consider arbitrarily putting taxes on car companies," said Mnuchin, as U.K. Finance Minister Sajid Javid sat next to him.
Mnuchin added that the U.S. would talk again with the U.K. over its plans, adding: "I'm sure the president and Boris (Johnson) will be speaking on it as well."
But Javid, pressed on whether the April tax would be scrapped, refused to back down.
"We plan to go ahead with our digital services tax in April. It is a proportionate tax, and a tax that is deliberately designed as a temporary tax," Javid said before adding, "It will fall away when there is an international agreement."
France, which had planned its own 3% levy, agreed to delay its plans until the end of 2020 after Washington threatened retaliatory tariffs on goods such as cheese and Champagne. The deal was struck directly between President Donald Trump and President Emmanuel Macron on Monday.
The Organization for Economic Cooperation and Development (OECD) is currently working on a plan to introduce a multi-lateral solution which would come into play, replacing any individual taxes by different nations.
Also speaking on the panel was IMF chief Kristalina Georgieva who said that tech firms need to pay a fair share of tax, but a multinational agreement would be the best solution.