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UK lost £2 billion in tax from US tech companies, says think tank

Written by Thu 19 Oct 2023

TaxWatch estimated that in 2021, seven US-based tech groups avoided £2 billion ($2.4 billion) in tax by shifting their profits outside the UK. 

In the 2021 tax year, TaxWatch reported seven US-based tech companies including Amazon, Apple, Meta, Microsoft, and Google parent Alphabet, were responsible for approximately £753 million ($916 million) in UK corporation tax and digital services tax. 

However, this contrasted with TaxWatch’s predicted tax liability of £2.8 billion ($3.4 billion). 

TaxWatch noted that many multinational companies commonly shift profits from high-tax countries to low-tax ones through complex financial transactions. 

This shift allows companies to capitalise on variations in tax rates and legal frameworks across the countries where their subsidiaries are located. 

“For that reason, the accounting profit declared in the UK accounts of many multinational companies is not always an accurate reflection of the real economic profit made by the company from its activities in the UK,” said TaxWatch in the analysis. 

Problems With Tax 

TaxWatch’s analysis aims to estimate the UK corporation tax that global technology multinationals would pay. This estimation assumed their UK profit rate for transactions with UK customers aligns with their global profit rate declaration. 

TaxWatch’s methodology assumed the UK market has an average level of profitability compared with all other markets these companies operate in. It also assumed the company’s expenses are evenly distributed across various markets. 

The think tank admitted the figures they arrived at can only be rough estimates due to the lack of data in public company records. 

“The complexities of taxation and interaction with accounting policies means that a figure for UK corporation tax paid is difficult to arrive at with any certainty,” said the TaxWatch in the analysis. 

International tax rules typically allocate profits based on value creation, which may differ from the customer’s location. 

TaxWatch said most international businesses will argue the think tank’s approach overstates UK profits because the majority of their product value is generated outside the UK. UK legislation follows this approach. 

“Both national governments and international organisations have struggled to find a way to make sure tax on profits from global businesses are paid fairly,” said Taxwatch. 

The think tank said there have been changes to legislation that attempt to tackle this problem with further changes planned. 

However, the lack of transparency is contributing to the issue, which TaxWatch proposes to be solved by country-by-country tax reporting. 

Analysis Divides Opinion 

Of the companies that responded to TaxWatch’s findings, all stressed they followed tax laws. Others strenuously disputed the findings and called into question TaxWatch’s methodology. 

“The conclusions of this research are inaccurate and based on several incorrect assumptions. During 2021, our international consumer business was loss-making, so ascribing a global operating margin to the UK business is not appropriate,” according to an Amazon spokesperson. 

Meta expressed concern with the current corporation tax system and stressed its compliance with current tax requirements. 

“Although we pay the required level of taxes under international tax rules, we understand there’s frustration about how multinational companies are taxed and have long called for reform of the global tax system,” said a Meta spokesperson. 

Apple declined to comment, and Alphabet did not respond to requests from TaxWatch.  There is no assertion by TaxWatch that the companies featured in the analysis are evading taxes illegally. 

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Written by Thu 19 Oct 2023

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