The Trump administration is preparing to escalate its trade dispute with the UK by considering the use of a 91-year-old tax rule that would double tax rates on British firms operating in the United States — a move that experts warn could have a more severe impact than tariffs.
Known as Section 891 of the US Internal Revenue Code, the rule was introduced in 1934 and gives the president sweeping powers to raise taxes on US subsidiaries of foreign companies if their home governments are deemed to be discriminating against American businesses.
Though never before used, the Trump administration is now actively exploring the measure. On the first day of his second term, President Trump ordered officials to investigate which countries impose “discriminatory” taxes on US firms. That review has now been completed — and the UK is believed to be among the nations on the list, along with other OECD countries.
The warning comes just a week after the White House triggered a global trade shock with the announcement of up to 49% tariffs on dozens of countries, including a 10% blanket tariff on British goods. But tax specialists say the next front in the trade war could be even more damaging.
“That’s the next battle in the [trade] war, and potentially affects the UK much more than the tariffs,” said Tim Sarson, head of tax policy at KPMG UK. “We’re a services economy and this obviously affects service transactions as well.”
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