By Balazs Koranyi and Dmitry Zhdannikov
DAVOS, Switzerland (Reuters) - U.S. Treasury Secretary Steven Mnuchin and his British counterpart Sajid Javid clashed over taxation on Wednesday in a brewing battle over how Europe taxes the world's biggest technology firms.
Javid said Britain would press ahead with a digital service tax in April even as Mnuchin, sitting feet away on the same stage, said such a move could generate "arbitrary" retaliation.
Several European nations are considering taxes on search engines, social media platforms and online marketplaces to compensate for lost revenues, drawing the ire of the United States which claims that such a tax unfairly targets U.S. firms.
"International tax issues are very complicated and take a long time to look at. If people want to just arbitrarily put taxes on our digital companies, we'll consider arbitrarily putting taxes on car companies," Mnuchin told a panel at the World Economic Forum in Davos, Switzerland.
France, which considered a similar tax, agreed this week to suspend payments for this year's digital tax after Washington threatened retaliation with tariffs on French wine.
Javid said Britain would not back down.
"We plan to go ahead with our digital services tax in April," Javid said. "It's a proportionate tax and it's deliberately designed as a temporary tax, so it will fall away once there is an international solution."
Seemingly trying to ease the tension, Mnuchin added that talks over the issue would be done in private, not on live television, and the key discussion is likely to be between U.S. President Donald Trump and British Prime Minister Boris Johnson.
In London, Johnson's spokesman said that despite its preference being for a global solution, Britain would push ahead with its own tax because it was taking too long to address the issue internationally.
"The problem is that the tax arrangements of multinational tax companies are undermining public trust and confidence in our economic system. The solution is an international agreement and Britain is at the forefront of discussions to achieve one," he said.
EU, NOT U.S., BRITAIN'S FIRST PRIORITY
The disagreement over tax comes as Britain is preparing to negotiate new trade agreements after it leaves the European Union.
Mnuchin said the United States was ready to strike a deal.
"We're very much looking forward to a new trade agreement with the UK. That's a big priority of ours for this year".
Mnuchin jokingly added the he was disappointed that Britain would not do a deal with the United States ahead of the EU given that it would be an easier negotiating partner.
Javid said a new trade deal with the EU was Britain's "first priority", as Prime Minister Boris Johnson has set an end-of-year deadline for post-Brexit transition arrangements.
European Commission President Ursula von der Leyen called the timescale unrealistic for a comprehensive deal when she met Johnson this month, but Javid said recent conversations with his EU counterparts had been more positive.
"I've had a number of discussions with my European colleagues... and there is a strong belief on both sides that it can be done... for both goods - where we want to see free trade with zero tariffs, zero quotas - but also on services."
Speaking to the BBC on Wednesday, von der Leyen said Britain should not feel it had to choose between an EU and a U.S. trade deal, and that there was progress to an agreement with the United States on a global approach to taxing internet companies.
Axel Weber, a former president of Germany's Bundesbank who is now chairman of Swiss bank UBS, predicted there would be a deal by the end of the year which would lead to a gradual, rather than a sudden, increase in trade barriers.
"It might not tick all the boxes for everyone, but it will reassure the market," he said.
"Some of the 'investor strike' for the UK, where people waited for the ultimate resolution, we are seeing that disappear. People are coming off the sidelines. People are putting money to work again."