EsPrime Minister Boris Johnson has stated that the British government “needs to look at the operations of the big digital companies and the huge revenues they make in the UK and the amount of tax they pay“, the Financial Times reports. The Conservative Party plans to implement a £500 million ($655 million) digital services tax from April 2020, using a similar rate (3% of revenues) and hurdle revenues to a recently applied tax in the U.K.
The risk is that a British DST would trigger a similar reaction from the U.S. as taxes imposed in France and planned for Austria, Italy and Turkey as outlined in Panjiva’s research of Dec. 4. The challenge is greater for the U.K. though. If Johnson’s administration survives the Dec. 12 elections then an exit from the EU becomes more likely and a trade deal with the U.S. more necessary. A standalone DST – outside the U.S.-preferred route of an OECD-harmonized system – could jeopardize such a deal.
Panjiva’s data shows that the potential British DST haul of $655 million is equivalent to just 1.0% of U.S. imports from the U.K. in the 12 months to Sept. 30. That compares to the 4.1% level implied by the tariffs planned by the U.S. in retaliation for France’s DST worth $2.38 billion.
Given the comparative size of the two countries’ economies and degree of e-commerce it’s somewhat surprising that there’s such a disparity in the dollar value of tax raise expectations.
Source: Panjiva
Presuming the U.S. follows a similar approach to tariff setting as in the French case then it would be British luxury consumer goods that will bear the brunt of any tariffs. That could easily be met by an additional 8.7% tariff on imports of cars (HS 8703.23 and 8703.24) though that may be tripped up by the outstanding section 232 review of the industry.
Imports of whiskies were worth $1.78 billion over the 12 months while gin shipments were worth $383 million. The $655 million retaliation could therefore be delivered via a 30.2% tariff on those two product groups. That would have an impact on shipments associated with Bacardi, Allied Domecq and Diageo. It’s worth noting that the spirits industry is already under pressure from U.S. tariffs related to aerospace subsidies in a total package covering $2.07 billion of products, focused on the beverages sector at rates of up to 25%.
Another possible, but smaller, category are beauty products (HS 33) which have been specifically targeted in the French case and were worth an aggregate $519 million in the 12 months to Sept. 30. Should that sector alone be used to meet the $655 million retaliation it would require a tariff rate of over 100%.
The leading shipper of British beauty products to the U.S. Natura Cosméticos’ The Body Shop, with 505 TEUs of shipments linked to the firm in the 12 months to Oct. 31, down 22.5% year over year in the past three months after a surge in growth in the prior 12 months.
Similarly Kao Corp’s Molton Brown, which was half the size with 260 TEUs of associated shipments fell by 26.3% the past three months, also after a prior surge.
An outlier has been shipments linked to Walgreens Boots which totalled 260 TEUs after a 47.3% year over year jump in last three months. The latter may represent stockpiling ahead of the recently delayed Oct. 31 Brexit deadline, though few significant changes to customs arrangements are likely in the near term.
Source: Panjiva
