The tax will be created to ensure established tech giants, rather than start-ups, shoulder the burden, Hammond told parliament.
Beginning in 2020, the tax would be assessed on "digital services companies" that register minimum annual revenues of £500 million ($640 million) globally. A new global agreement is the best long-term solution.
But Dame Margaret Hodge, a former chairwoman of the Commons Public Accounts Committee who repeatedly challenged tech giants over their taxes, said the £400 million tax was "simply gesture politics". The chancellor added that the UK Government welcomes discussion on a possible replacement if there proved to be a consensus objecting the implementation of the digital services tax.
Hammond suggested the tax will begin in April 2020, pending consultation.
Well according to Hammond, the UK's "narrowly targeted tax" on UK-generated revenues and would not be aimed at start-ups.
The letter addressed to finance ministers of the 28-members of the EU, warned that digital services tax would curtail technological innovation and would negatively impact the economic growth of the region, as well as the employment growth in the European markets.
Budget documents published this afternoon show that, after raising an initial £5m in 2019/20, in the 20201/21 year the tax is expected to generate revenues of £275m.
Scotland has control over income tax rates and bands and SNP Finance Secretary Derek Mackay has already indicated that he won't follow the cuts set out south of the border, insisting that Scotland will take a "fairer and progressive" approach.
After shadow chancellor John McDonnell said Labour would end the working-age benefit freeze if it gained power, the party is set to table Budget amendments calling for income tax rises for high earners.
There has been particular concern in Britain about online shopping giants such as Amazon undercutting traditional retailers.
Nicola Sturgeon has been urged to rule out further tax rises after the Budget left her facing a "dilemma" over the widening tax gap between Scotland and the rest of the UK.
And he said that, even after the injection of around £2 billion a year into Universal Credit, there would be "millions of losers" from the introduction of the new benefit.