Fresh questions on global tech company structures that divert revenues
Netflix and eBay, two US technology groups with millions of British customers, collectively paid less than £1.9m in UK tax last year, raising new questions about how multinationals structure their businesses to minimise their tax bills.
Ebay’s UK business paid £1.6m in tax on £7.6m of profits and £200m of revenues last year, according to the e-commerce company’s latest filings with Companies House. However, the online retailer had previously told US authorities it registered more than $1.3bn of revenues in the UK in 2016. The revenue figure reported in the US appears to include commissions eBay received on sales in the UK, but those figures are not included in the UK accounts.
Instead, the UK subsidiary describes its revenue as coming only from providing marketing and advertising services to eBay’s Swiss entity, eBay International AG. Separately, Netflix’s latest UK filings show the video-streaming service registered a 39 per cent fall in its UK tax bill to less than €300,000 last year, while its UK revenues and profits nearly halved to €22m and €1m.
The California-based company, which is thought to have roughly 6.5m subscribers in Britain, books all of its subscription revenue from UK users through its parent company Netflix International BV, which is based in the Netherlands.
Ampere Analysis, a London-based research firm, estimated Netflix made $520m of subscription revenue last year in Britain — about 20 times what the company’s UK filings suggest — on the basis of estimated UK user numbers and monthly subscription pricing. Jolyon Maugham, a UK tax barrister, said eBay’s UK accounts suggested its British “tax liabilities are not a function of the profits that they make on their UK-based sales”.
“This illustrates how divorced our corporate tax system has become from the world in which it is supposed to operate,” Mr Maugham said. “You have a tax system that only nods in passing to the activities taking place.” The issue of US tech giants using complex corporate structures to avoid large tax bills in Europe has become the subject of increasing political controversy, with the European Commission earlier this month taking Ireland to court for failing to collect €13bn in back taxes from Apple and accusing Luxembourg of giving Amazon preferential treatment.
Last year, George Osborne, then UK chancellor, faced harsh criticism for striking a deal with Google that allowed the California group to pay £130m in back taxes despite earning $5.6bn in UK revenues in 2013. “This is the same debate we have with Facebook, Google, Airbnb and Uber,” said Mr Maugham. “To most people [these companies’ tax payments in the UK] are an outcome that feels counterintuitive or grossly unfair.”
Ebay declined to comment on the reason for the different UK and US revenue figures. “In all countries and at all times, eBay is fully compliant with national, EU and international tax rules including those of the OECD, including the remittance of [value added tax] to the appropriate authorities,” a company spokesperson said.
A Netflix spokesperson did not comment on the UK revenue estimates but said: “In 2016, our UK entity reported €22m revenue and €21m operating expenses on marketing activities, with a profit before tax of €1m and an income tax charge of €269,000. [This makes] an effective tax rate of approximately 27 per cent.” “Netflix is contributing to the UK economy in many different ways, including corporate and other taxes, remitting millions in VAT, employing staff directly and funding dozens of UK productions for hundreds of millions of pounds.”
Labour MP Caroline Flint said of both companies’ UK tax payments: “[These figures suggest] diverting profits to low-tax or no-tax states is widespread. This will be offensive to many customers, and is grossly unfair to many UK-based businesses who pay their taxes and reject using profit-shifting or shell companies.”
The UK government attempted to encourage companies to pay more tax by introducing in 2015 a “Google tax” on profits diverted overseas. Profits caught by the levy are taxed at 25 per cent, compared with the current UK corporation tax rate of 19 per cent.
Some lawyers have questioned the success of the new UK levy, which was intended to encourage companies to restructure their businesses to pay more corporation tax in the UK, although few have done so.
Vince Cable, leader of the Liberal Democrats, said: “[These companies’ tax payments are] another example of international companies being able to bypass British tax legislations. There needs to be reform of company taxation so that it tackles levels of activity, not just declared profits.”
Despite its growing subscriber base in the UK, Netflix operates on razor-thin margins, spending huge amounts on acquiring and creating programmes for its streaming service.
“Perhaps unlike some other tech companies, which are obviously shifting money from country to country to minimise [their] tax burden, Netflix is still in expansion mode and is only marginally in profit globally,” said Richard Broughton, research director at Ampere Analysis. “But of course, recently announced price rises, even of 50 cents, will impact top-line revenue by three-quarters of a billion dollars.”