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Netflix Accused of Tax Avoidance in the UK

Netflix tax avoidance UK

Earlier this week, members of the Parliament accused American tech giant Netflix of failing to pay their fair share of corporate taxes in the UK.

Labour MP Margaret Hodge told Parliament that, based on a study released by UK think tank Tax Watch, the US firm had avoided paying close to 13 million pounds in taxes to the country in 2019.

According to Tax Watch’s report, “in 2018 the company reported revenues of £43.3m and profits of just £2m at its main UK company, Netflix Services UK, and paid no tax.”

Netflix also “received a tax credit under the creative industry tax relief scheme,” while having “generated an estimated £860m in revenues from its UK customers.”

Hodge told Parliament, “Netflix takes out of the public purse more than it contributes in corporation tax. While Her Majesty's Revenue and Customs fails to collect money from it in corporation tax, the US government is extracting tax from the same profits that it earns here and then hides in unknown tax havens.”

“What is particularly galling is that Netflix actually makes a net profit from the UK taxpayer. In the last two years it has received nearly £1m from the government in tax credits, and that is just the start,” she added.

“It is nothing less than superhighway ​robbery. The UK taxpayer is being taken for a ride. We are actually handing over cash while Netflix stashes money offshore,” Hodge concluded.

Netflix tax avoidance

Government & Industry Experts React to Netflix Tax Avoidance Accusations

The UK’s Financial Secretary to the Treasury, Jesse Norman, recognized “some multinational businesses have sought to avoid paying their fair share of tax in the UK by entering into contrived arrangements to divert profits to low tax jurisdictions.”

Norman added: “The effect of this is to deprive the Exchequer of revenues needed to fund the public services on which we all rely. It's completely unacceptable, which is why the government has taken robust action designed to inhibit or prevent it,”

A spokesperson for Netflix said the company complies with all relevant tax regulations, adding, “The TaxWatch report has a number of inaccuracies, including that Netflix has a Caribbean-based entity,” a statement that “is no longer the case as we significantly simplified our tax structure last year.”

Netflix did agree that there’s a need for comprehensive tax reform across the globe.

Netflix said that it backs “the OECD's (Organisation for Economic Co-operation and Development's) proposal for companies to pay more tax in the countries where their operations help generate value.”

Industry experts, however, posit that Netflix is complying with all UK tax regulations and warn that applying pressure on companies to contribute more in tax revenue might lead to higher costs for the end consumer.

Miles Dean, who heads the international tax desk at Andersen Tax UK, told MarketWatch: “The furor over Netflix’s and other foreign corporates’ tax bills continues. The consumer’s contract is with a U.S. business. Netflix does not trade in the U.K. and has no connection to the U.K. other than sales, marketing and of course its customer.”

Dean added: “Under current law, Netflix is paying all the tax it is obliged to pay. The only profit allocated to the U.K. is the amount paid to the sales and marketing function, on which tax is paid. Forcing corporates to pay more in tax than what is required runs the risk of pushing these costs onto consumers, resulting in higher fees and costs for goods.”

All of this comes at a time when the UK is close to implementing a two percent digital services tax on companies such as Google, Facebook and Amazon to handle the “misalignment between the place where profits are taxed and the place where value is created.”

This new digital services tax will come into effect on April 1, 2020, and Hodge urged the UK government to also impose this levy on video streaming companies such as Netflix.