US threatens to double tax rates on UK firms under obscure 91-year-old rule

The Trump administration is preparing to escalate its trade dispute with the United Kingdom by considering the use of a 91-year-old tax base that would double tax rates on British companies operating in the United States-a step that experts warn have a more severe impact of customs tariffs.

Known as Section 891 of the American Internal Revenue Law, the base was introduced in 1934 and gives the president comprehensive powers to raise taxes on American subsidiaries of foreign companies if their home governments consider discrimination against American companies.

Although it is not used before, the Trump administration is now actively exploring this procedure. On the first day of his second term, President Trump ordered officials to investigate countries that impose “discriminatory” taxes on American companies. This review has now been completed – and it is believed that the United Kingdom is among the nations on the list, along with other countries of the Organization for Economic Cooperation and Development.

This warning comes just one week after the White House appeared a global commercial shock with a tariff up to 49 % on dozens of countries, including a 10 % blanket tariff on British goods. But tax specialists say that the next front in the trade war may be more harmful.

“This is the next battle in the (commercial) war, and it may affect the United Kingdom much more than the definitions,” said KPMG UK. “We are the economy of services and this clearly affects service transactions as well.”

At the heart of the White House concerns, there are tax policies in the United Kingdom whose American companies are not fairly targeted, especially large technology companies. UK digital services tax, which was presented in 2020, imposes a 2 % tax on UK revenue for technology companies that generate more than 500 million pounds in the world. Many of the largest companies caught by the US -based tax.

In light of the scrutiny, there is a profit base that has been subjected to the tax tax in the United Kingdom, which is part of the global tax framework on the Organization of Economic Cooperation and Development. This allows HMRC to apply a “higher” tax on low-tax companies-including some American states-if it is 15 % less than the global tax rate.

In addition, the profit tax converted in the United Kingdom – often referred to as “Google Tax”, which was presented during the era of former adviser George Ospurne – is seen as another attached point. This measure targets companies that convert profits into low -tax countries despite the presence of major operations in the UK.

“If any country will end up in the list, the United Kingdom will be,” said a senior tax consultant in the United States.

Administration also studies an additional procedure – Section 899 – which would gradually raise taxes by 5 % each year, instead of immediate weakness. Although this is considered less dramatic, its cumulative effect will remain important for foreign companies operating in the United States.

However, there is still a legal uncertainty about whether these measures can be imposed unilaterally. The United Kingdom and the United States have tax treaties and existing trade arrangements that can exceed the two sections 891 and 899. These agreements may provide protection against sudden increases in tax rates, although this may eventually become an issue of international legal and diplomatic interpretation.

For UK-UK companies with major American-prolonged operations in technology, financing and professional services-the threat of punitive taxes adds a new layer of uncertainty at a time when markets are already shaken by the growing definitions and geopolitical tensions.

If it is invoked, section 891 will represent a major escalation in the economic relationship in the United Kingdom and the United States, which transforms the focus from merchandise trade to cross -border taxes and intellectual property.

With the development of the situation, business leaders and commercial associations are likely to pressure the UK government to interact with Washington diplomatically – not only to avoid revenge taxes but to support the confidence invested in UK companies abroad.