Chancellor of the Exchequer Philip Hammond has announced a 'Digital Services' tax, of two percent levied against companies earning more than £500 million in global revenue, as part of the government's 2018 Budget.
In recent years, the internet giants of the U.S. have become known as much for creatively sidestepping the tax man as they have for innovative products and services, but the playing field is shifting.
Speaking in the Commons on Monday, Philip Hammond said: "A new global agreement is the best long term solution".
"We will set up a Centre for Excellence to actively manage these contracts in the tax payers interest. and we will go further, I have never signed off a PFI contract as chancellor and I can confirm today that I never will".
In their letter, tech giants such as Spotify, Booking.com, and Zalando warned that the digital tax could result to unfair market treatment, double taxation for the businesses, and could possibly be emulated by other countries.
And while the chancellor didn't name Google, Amazon or Facebook directly, he did say he was "already looking forward to my call from the former leader of the Liberal Democrats".
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The new UK Digital Services Tax to be introduced in April 2020 is a "narrowly targeted tax" on the UK generated revenues of digital platforms. Digital platforms delivering search engines, social media and online marketplaces have changed our lives, our society and our economy, mostly for the better.
"Given the dominance of the US tech giants, it is hard to see the Trump administration taking kindly to the digital sales tax as the United Kingdom sets out its stall for the best possible trade deal with the US", Dan Neidle, a tax partner at law firm Clifford Chance told the BBC.
Mr McDonnell said Labour would not oppose the tax cuts as they would also benefit low and middle-income workers. The tax will only apply to companies that generate more than £500m a year in global revenues.
Publicans urged revenue from the tax be fed back into hospitality businesses to halt pub closures across the country.
It is possible for firms that are affected to pass on the tax hike to consumers, analysts have said in this ongoing debacle to tax digital companies.
"It's not tax rises and it's not the NHS that Mr. Hammond is willing to gamble on, it's the public finances". It is expected to raise about £400 million ($512 million) a year, Hammond estimated.