US retaliating against the UK’s Digital Services Tax

The US Government is warning that it will slap tariffs of up to 25% on many key British exports, in retaliation for the UK’s new Digital Services Tax. The international delivery expert ParcelHero says Britain’s new tax was misconceived from the beginning.

President Joe Biden’s US Government has slammed the UK’s go-it-alone Digital Services Tax (DST) as ‘unreasonable, discriminatory and burdensome’. It is planning to slap $325m (£235.8m) of taxes on key British exports to the US in response to Britain’s new online tax.

The US delivery expert ParcelHero says the DST was misguided from its introduction last April. It introduced a new 2% duty on services from the likes of US giants Google and Amazon, which was swiftly passed on to Britain’s beleaguered online shoppers.

ParcelHero’s Head of Consumer Research, David Jinks M.I.L.T., warns that some of Britain’s best-loved brands will now also be paying a high price for the misconceived tax.

‘Many of Britain’s best-known brands will suffer new taxes of up to 25% on their US sales if Washington follows through on its threat. Clothing, furniture, shoes and even specialist British products such as saddles will be hit by the new tariffs if they are introduced. Big names such as Burberry will be caught up in the tit-for-tat measures.

‘The DST was introduced last April in a desperate attempt to make up for lost income from business rates and to supposedly level the playing field between High Street and online stores. It was originally the brainchild of former Chancellor Philip Hammond. He decided Britain couldn’t wait for planned international action against multinational e-commerce giants and that the UK would go it alone with a new online tax. He argued the DST could bring in £500 million a year but, as shoppers moved online during lockdown, its timing proved unfortunate.

‘As we warned at the time, the international tech giants simply passed the cost to companies using their services, who then passed it on to their customers. Amazon increased seller fees on its platform in response to the 2% tax increase, followed by Google, which now applies the full cost of the tax to all ads on UK Google and YouTube as an additional fee to advertisers. Needless to say, those advertisers then pass the cost of services such as ‘pay per click’ to their customers, through an increase in prices.

‘The US Government’s retaliatory strike was planned when Donald Trump was still in office, but President Biden has not stopped its rollout. The Office of the United States Trade Representative (USTR) will hold a committee hearing on 4 May to decide whether the new tax plans will be pushed through. If they are, then many of Britain’s best-loved brands will pay a heavy price for the misguided tax, just as their EU markets shrink through excessive red tape and costs following Brexit.

‘Amazingly, a UK Government spokesperson has said in response to the announcement from Washington: “Should the US proceed to implement these measures, we would consider all options to defend UK interests and industry.” Is this deeply misguided tax going to propel us into a trade war with our closest trading partner post-Brexit?

‘The online tax nightmare isn’t going to stop there. The UK’s business rates are the highest in Europe and hoover-up £25bn a year for the Government. To make up for lost income because of the current Covid business rates holiday, Chancellor Rishi Sunak was expected to announce a new 2% Online Sales Tax (OST) on all e-commerce purchases in his Spring Budget. This would include all sales from US companies selling to UK shoppers.

‘It’s rumoured Chancellor Sunak postponed the announcement of his new sales tax until he could gauge President Biden’s reaction. Judging from Washington’s proposed retaliation to the DST, we think he now has a pretty good idea what the reaction would be to a further online tax.

‘Far from helping “level the playing field” between High Street and online stores, online taxes dig up the entire pitch by forcing every sensible retailer with both physical and online stores to pay a new e-commerce tax, on top of whatever scheme eventually replaces business rates. They also alienate our closest trading partners.

‘You can read our response to the Digital Services Tax plans when they were first announced in our 2018 report “The Digital Tax – To Save A Sinking Ship, Would You Torpedo Another?” that outlines the issue in detail and offers some potential alternatives:

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