Washington –A new report by the Computer & Communications Industry Association Research Center finds that the Liberal Democrats’ 2024 election proposal to increase the UK Digital Service Tax (DST) from 2% to 6% would detrimentally affect U.S. companies offering digital services, penalize companies with lower profit margins, and harm UK consumers. The report describes how the DST taxes gross revenues instead of income, double taxing U.S. companies, particularly leading U.S. companies such as Amazon, Apple, eBay, Meta, and Google.
Without any pass-through to UK customers, the proposed DST increase could cost U.S. companies an additional £1.4 billion. With pass-through to UK consumers, after accounting for reduced quantity demanded and the value of worsened competitive dynamics, U.S. companies may lose $4.4 billion per year. At $744,000 in revenues per employee, this translates to U.S. job losses of 5,914. With pass-through, UK consumers in the aggregate would spend 1.5% more for 4.2% less quantity.
In a recent report, the United States Trade Representative (USTR) found that the UK DST is intended to unfairly target U.S. companies. In response, USTR imposed retaliatory tariffs on the UK and then terminated the retaliatory tariffs only under the expectation that the UK DST would be removed and U.S. companies would be credited for their DST liabilities. However, in the event that the DST increases to 6% rather than removal, the UK government should expect retaliation from the USTR in the form of increased tariffs.
If the United States fails to protest, investigate, or retaliate in response to a tripling of the UK DST, a precedent will be set that increases the risk of global contagion for DSTs targeting U.S. digital exporters. Such contagion risks significantly increasing the costs to U.S. businesses, workers, exports, and the tax base.
The Computer & Communications Industry Association has advocated for tech policy that advances competition and innovation for over 50 years.
The following can be attributed to CCIA Chief Economist & Research Center Director Trevor Wagener:
“The United States government has already concluded that the UK Digital Services tax discriminates against U.S. companies and is designed contrary to international tax principles. Proposals to triple the UK DST rather than phase it out would harm both U.S. companies and UK consumers, and would invite retaliatory tariffs.”