US considering 25% tariff in retaliation to UK’s digital services tax

The US is mulling a new tax on UK goods such as industrial robots

Front of the White House at night

The US is considering implementing a 25% tariff on a selection of British goods that enter the country in retaliation to the UK’s digital services tax (DST).

The goods that the tariff will affect include industrial robots, clothing and ceramics, according to a list published by US officials.

The Office of the United States Trade Representative (USTR) seeks to collect duties on UK goods in the range of the amount of DST that the UK is expected to collect from US companies, which it estimates to be approximately $325 million (£236m) per year.

“The United States is committed to working with its trading partners to resolve its concerns with digital services taxes, and to addressing broader issues of international taxation,” said USTR ambassador Katherine Tai.

“The United States remains committed to reaching an international consensus through the OECD process on international tax issues. However, until such a consensus is reached, we will maintain our options under the Section 301 process, including, if necessary, the imposition of tariffs.”

The UK is not the only country affected by this decision, as are Austria, India, Italy, Spain and Turkey who are also under consideration for the 25% tariffs on goods from their countries as they have implemented a similar DST.

The USTR has dropped its investigations against Brazil, the Czech Republic, the EU and Indonesia for now as these countries have not adopted or implemented the DSTs under consideration when the US began its investigations. It made it clear, however, that if these countries adopt or implement a DST in the future, the USTR may initiate new investigations.

A UK government spokesperson told IT Pro that like other countries around the world, the UK wants to make sure tech firms pay their fair share of tax. The spokesperson said the tax is “reasonable, proportionate and non-discriminatory” before revealing that it is also “temporary”.

“We’re working positively with the US and other international partners to find a global solution to this problem and will remove the DST when that is in place. Should the US proceed to implement these measures, we would consider all options to defend UK interests and industry,” added the spokesperson.

The UK announced its DST in October 2018, which is a 2% tax on revenues of search engines, social media platforms and online marketplaces that are profitable, and generate over £500 million per year in revenue.

The US’s plans to challenge the UK’s DST originated in June of last year under the Trump administration, where it made it clear it would investigate all countries that are adopting this new form of tax. The US claimed that the tax schemes were “designed to unfairly target our companies.”

In August 2020, reports emerged suggesting that the UK government was considering dropping its DST to avoid any conflict with the US during its trade talks. 

Furthermore, it was reported that Amazon would not be affected by the DST in the UK, but smaller traders using its online marketplace would face increased charges. This was seen as a benefit for the tech giant, which would effectively gain a price advantage on competing goods it sells directly to consumers.

Despite this, last month the UK government was considering implementing an “Amazon tax” to help the country recover from the COVID pandemic. The Treasury reportedly invited tech firms and retailers to discuss a potential Online Sales Tax, following the news that Amazon’s profits skyrocketed by 51% in 2020.

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