US Retaliates Against UK Over Digital Services Tax Dispute

Shipping containers are stacked at Southampton Docks in Southampton, England on Nov. 20, 2018. (Matt Cardy/Getty Images)

The Biden administration has threatened to impose 25 percent tariffs on British exports to the United States in retaliation for a UK digital services tax (DST) on major technology companies that came into effect on April 1.

Its aim is to raise around £236 million ($325 million) per year, which is the estimated equivalent of the damage imposed by UKs DST.

Clothing and footwear, ceramics, beauty products, gold and jewelry, furniture, robotics, and refrigerators are all being affected.

This comes weeks after the United States agreed to suspend millions of dollars worth of tariffs on UK exports including Scotch whisky as part of an effort to resolve a long-running trans-Atlantic trade dispute over aerospace subsidies between Boeing and Airbus.

“It is hugely disappointing that, yet again, our manufacturers are threatened with additional tariffs, particularly as the trade dispute has nothing to do with our industry, said Adam Mansell, CEO of the UK Fashion & Textile Association.

“At a time when we are trying to start discussions over a UK-U.S. trade deal, it is extremely important that both governments get around the table to remove this threat as soon as possible. With the industry still struggling with the impact of COVID-19 and understanding the new trade arrangements with the EU, an additional burden on our exports couldn’t come at a worse time.”

The DST, spearheaded by Chancellor Rishi Sunak adds a 2 percent tax to the revenues of certain search engines, social media platforms, and online marketplaces, mostly coming from the United States. The DST applies only to companies with digital services revenues exceeding $500 million and United Kingdom digital services revenues exceeding £25 million ($34.6 million).

Tech giants, Google, Amazon, Facebook, Apple, and eBay have all been affected; most of these are U.S.-based. Amazon, Google, and Apple say they will pass the cost on to their customers.

“Like many countries around the world, we want to make sure tech firms pay their fair share of tax. Our digital services tax (DST) is reasonable, proportionate, and non-discriminatory. It’s also temporary. We’re working positively with the U.S. and other international partners to find a global solution to this problem and will remove the DST when that is in place,” a UK government spokesperson told the BBC.

The U.S. tariffs are in accordance with a “Section 301” investigation into countries discriminating against U.S. digital companies, that were inconsistent with principles of international taxation, and burdened U.S. companies. It was implemented by the Trump administration in 2020 and has been put into effect by the Biden administration. Austria, India, Italy, Spain, Turkey are also subject to the action.

A hearing by the U.S. Trade Representative office is expected to take place on April 21.

The Associated Press contributed to this report.