A new report by a tax transparency group claims that seven of the world’s largest tech companies paid only a fraction of the taxes they should have in the UK in 2021.
How much tax did they pay?
According to TaxWatch, a campaign group that monitors corporate tax avoidance, seven US-based tech giants – Apple, Microsoft, Alphabet (the owner of Google), Amazon, Meta (the owner of Facebook), Cisco and Adobe – paid a total of £750m in UK corporation tax and digital sales tax in 2021. This is equivalent to an effective tax rate of 5.1% on their estimated UK profits.
However, the group argues that these companies should have paid £2.8bn in taxes, based on their global profit margins and UK revenues. This means that the UK might have lost out on £2bn in tax revenues from these companies, as they shifted their profits to low-tax jurisdictions.
How did they shift their profits?
The report by TaxWatch reveals that these tech companies use various strategies to reduce their taxable income in the UK, such as:
- Charging high fees to their UK subsidiaries for the use of intellectual property rights, such as patents and trademarks, that are owned by entities in tax havens.
- Booking their online sales to customers in the UK through entities in other countries, such as Ireland or Luxembourg, where corporate tax rates are lower.
- Allocating a large share of their global costs, such as research and development, to their UK subsidiaries, while attributing most of their global revenues to entities in tax havens.
These practices allow these companies to report low profits or even losses in the UK, while making huge profits elsewhere.
What are the implications of this?
The report by TaxWatch highlights the challenges that governments face in taxing multinational corporations, especially those in the digital sector, that operate across borders and exploit loopholes in the international tax system.
The group calls for more transparency and accountability from these companies, and urges the UK government to implement country-by-country reporting, which would require them to disclose how much revenue, profit and tax they pay in each jurisdiction where they operate.
The group also supports the global minimum tax agreement reached by 136 countries in October 2021, which aims to ensure that multinational corporations pay at least 15% tax on their profits wherever they operate. The group estimates that this agreement could raise an additional £1.3bn in tax revenues from these seven tech companies in the UK.
How did the companies respond?
All of the companies that responded to the report said that they comply with all relevant tax laws and regulations in the UK and other countries where they operate. They also said that they make significant contributions to the UK economy through investment, employment and innovation.
Some of the companies disputed the methodology and assumptions used by TaxWatch to estimate their UK profits and taxes. For example, Amazon said that its UK profit margin is much lower than its global average, due to its high level of investment and reinvestment in the UK. It also said that it pays all applicable taxes on its UK activities, including VAT, business rates and employment taxes.
