LONDON — Some of Britain’s largest industry organizations have expressed dismay at the possibility of a new 25 percent tax on clothing, beauty, footwear, gold and jewelry exports to the U.S., retaliation against a digital services tax set to come into force here on Thursday.
It was only a few weeks ago that the U.S. agreed to suspend tariffs on goods imported from the U.K. in the long-running Airbus-Boeing dispute. At the time, both countries hailed the move as a step toward a post-Brexit trade deal, while cashmere- and whisky-makers breathed a sigh of relief at the temporary relaxation of the punitive tariffs.
“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, chief executive officer of the U.K. Fashion & Textile Association.
“At a time when we are trying to start discussions over a U.K.-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 European Union, an additional burden on our exports couldn’t come at a worse time,” he added.
William Bain, trade policy adviser at the British Retail Consortium, said any new U.S. tariffs would “raise the price for American consumers, and harm transatlantic trade. They would compound the challenges faced by many U.K. retailers who are already struggling under new VAT and customs costs for exporting to the European Union. The BRC has made these views clear to the U.K. Government, and we hope they take necessary measures to prevent new tariffs.”
Among the U.K. exports that could be taxed are men’s and women’s outerwear, women’s and girls’ dresses, men’s shirts and ties, beauty products, leather shoes, gold necklaces and jewelry made from base metal.
According to the Office of the United States Trade Representative, beauty products that could carry new tariffs include perfume, lipstick, eye makeup, nail polish, compressed and non-compressed powders, hair spray and bath salts.
Among the British brands that could potentially be impacted are Floris, Miller Harris, Penhaligon’s, Jo Loves, Charlotte Tilbury and D R Harris.
Millie Kendall, CEO of the British Beauty Council, product developer and marketeer, said the prospect of new tariffs was “concerning. There is already a huge hurdle for U.K. brands in terms of trading in the U.S. already. The cost of marketing a brand there is astronomical and the distribution costs are already a challenge. So any additional cost is definitely not welcome.
“With the struggle we are having in terms of continuing trade with the EU, our distribution options are limited. This is detrimental to British beauty brands. We have such a strong legacy and global expansion is intrinsic to the future planning of any new brand.”
According to a 2018 report “CEW: Defining the U.K. Beauty Landscape,” some 66 percent of U.K. beauty exports go to EU countries, with the Republic of Ireland the largest export market. Exports to North America made up a large part of the remaining 34 percent and, at the time, were rising in the double-digits.
The latest U.S. duties are designed to raise $325 million, the amount the U.S. believes the U.K. tax will raise from U.S. tech companies such as Amazon, Alphabet and Facebook. The tariffs are subject to a review in the U.S. over the next few weeks.
On Thursday, the British government will introduce a new 2 percent tax on the revenues of search engines, social media services and online marketplaces that derive value from U.K. users.
The British government said it wants to rectify the “misalignment between the place where profits are taxed, and the place where value is created,” with regard to digital businesses. It wants to ensure that large, digital multinationals “make a fair contribution to supporting vital public services” here.
The government said it believes the most sustainable long-term solution to the “tax challenges” arising from digitalization is reform of the international corporate tax rules. The government said it “strongly supports” G7, G20 and OECD discussions on long-term reform, and is committed to scrapping the digital services tax once an appropriate international solution is in place.
U.S. tech firms have long been in Europe’s firing line for basing themselves in local tax havens and paying minimal fees in the individual countries where they operate.
In 2019, Amazon posted sales of $281 billion on profits of $11.6 billion. In the U.K. that year, its sales were 13.73 billion pounds, while it paid 293 million pounds in tax.
According to the BBC, the taxes Amazon paid included business rates, corporation tax, stamp duty and other contributions. At the time, Amazon said it pays “all taxes required in the U.K.”
As of Thursday, digital businesses will be liable for the new 2 percent tax when their group’s worldwide revenues are more than 500 million pounds, and more than 25 million pounds of these revenues are derived from U.K. users.
There is an allowance of 25 million pounds, which means a group’s first 25 million pounds of revenues derived from U.K. users will not be subject to the digital services tax.
Over the past 18 months, luxury, fashion, beauty and consumer businesses in the U.K. have been caught in a perfect storm of trading challenges resulting from Brexit, the elimination of tax-free shopping and trade wars with the U.S.
Last year, the British government made a shock decision to repeal the VAT Retail Export Scheme, which had allowed visitors from outside the U.K. to benefit from tax-free shopping.
For years, the British government had subsidized the tax-free shopping program, but those days are over as it looks to claw back as much money as it can to offset the billions in debt accrued during the COVID-19 crisis.
COVID-19 has presented a separate raft of problems, with lockdown weighing heavily on businesses with brick-and-mortar stores. Stores and salons will open again on April 12, and brand owners are hoping that demand for physical retail bounces back.