A new report by the Computer & Communications Industry Association Research Center indicates that the Liberal Democrats’ 2024 election proposal to increase the UK Digital Service Tax (DST) from 2% to 6% would negatively impact U.S. companies offering digital services, penalize firms with lower profit margins, and harm UK consumers. The report highlights that the DST taxes gross revenues instead of income, resulting in double taxation for U.S. companies, particularly affecting major firms such as Amazon, Apple, eBay, Meta, and Google.
The proposed DST increase could cost U.S. companies an additional £1.4 billion without any pass-through to UK customers. With pass-through to UK consumers, accounting for reduced demand and worsened competitive dynamics, U.S. companies may face losses of $4.4 billion per year. This translates to potential job losses of 5,914 in the U.S., based on revenues of $744,000 per employee. Additionally, UK consumers would spend 1.5% more for 4.2% less quantity.
A recent report by the United States Trade Representative (USTR) found that the UK DST unfairly targets U.S. companies. In response, USTR imposed retaliatory tariffs on the UK but later terminated them under the expectation that the UK DST would be removed and U.S. companies credited for their DST liabilities. However, if the DST increases to 6%, further retaliation from the USTR in the form of increased tariffs is anticipated.
Failure by the United States to protest or retaliate against a tripling of the UK DST could set a precedent increasing global contagion risks for DSTs targeting U.S. digital exporters. Such contagion could significantly raise costs for U.S. businesses, workers, exports, and tax revenue.
The Computer & Communications Industry Association has advocated for tech policy advancing competition and innovation for over five decades.
Trevor Wagener, CCIA Chief Economist & Research Center Director stated: “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.”
