Mel Stride, a minister in Britain's finance ministry, has written to Nicky Morgan, chairwoman of the Treasury select committee, to say there was a "high risk" that any such tax would breach the bloc's state aid rules, the newspaper said.
Britain, which is due to leave the European Union on March 29, has accepted "dynamic alignment" with the bloc on state-aid rules as per the draft withdrawal agreement, the report added.
Last August, finance minister Philip Hammond had indicated that he was considering a tax on online retail players.
"This is about international tax arrangements, because most of the online businesses are international businesses," Hammond said in August. "If we can't get international agreement to do this we may have to look at temporary tax measures to rebalance the playing field."
(Reporting by Shubham Kalia in Bengaluru; Editing by Sandra Maler)
