US set to raise $8.5bn from four tech companies following global tax deal

7th October 2021 by Alex Dunnagan

New analysis from TaxWatch reveals how the US Government is set to be the big winner from increases in taxes on big tech arising from the global tax negotiations currently underway under the auspices of the G20/OECD.

In our latest research, we have analysed the gains that the US Government can expect from imposing a global minimum tax of 21% on Facebook, Google, Apple, and Microsoft. This would result in an extra $5.4bn in taxes from just these four companies, whereas we estimate the total additional tax these companies would pay in all other countries under Pillar One would be $2.5bn under the terms of the G7 agreement set out earlier this year.

The figure of 21% is used because the stated intention of the US Government is to impose a global minimum of 21% on companies headquartered in the US, regardless of the minimum level set through the OECD led process.

Furthermore, we find that the US Government would also benefit from the removal of tax incentives on royalties received by US parents from overseas operating companies (the Foreign Derived Intangible Income incentive, or FDII).

The removal of the FDII incentive is facilitated by the increase in global minimum taxation and therefore should be seen as a benefit of it.

We estimate that just four tech companies will see taxes increase in the US by $3bn per year as a result of the removal of the FDII.

Taken together, this means that the package of reforms will mean a yearly increase in US Tax of $8.4bn from just four companies, as against a benefit of $2.5bn shared between all other countries.

What is significant is that both the global minimum tax and the FDII only impact profits that arise from revenues made overseas, in countries like the United Kingdom where sales are made. The analysis therefore demonstrates that the G7 / OECD deal resolves the question of who gets to tax the offshore billions of tech companies decidedly in favour of the United States, with relatively little being distributed to the countries where these companies operate. This was not necessarily the outcome expected from the OECD led BEPS process, which had a stated goal of making tech companies pay a fair share in the countries where they operate.

The full report, ‘A Fair Distribution’, is available as a web page here, and as a PDF here. This research was featured in The Guardian as an op-ed by our Executive Director George Turner, available here.

Tech giants undermine African countries by failing to collect VAT

12th July 2021 by Alex Dunnagan

African countries are missing out on significant tax revenues because multinational tech giants are failing to collect and pay VAT on services, according to new research.

A new report published by TaxWatch finds that Microsoft, Google and Facebook are not collecting VAT on sales made to customers in most African countries, even in some countries where they have a local office.

The companies say that they will only collect VAT and sales taxes in countries that have levied specific taxes on digital products, claiming that it is up to the customer to pay any taxes due.

However, analysis from TaxWatch shows that these companies should be required to register for VAT under existing VAT rules in many African countries if they make significant sales.

VAT, a tax on the final consumption of goods and services, is an important source of revenue for tax authorities. An analysis from the OECD shows that on average VAT accounts for 30% of tax revenues in Africa, as opposed to taxes on individuals, which make up just 15.4%. Taxes on corporations account for 18.6% of tax revenues on average.

Since 2013 a number of African countries have changed their laws so VAT is collected on products, such as advertising, sold to customers.

The report does not make any estimate of the amount of money that could be raised if digital companies registered for VAT, as this would require detailed knowledge of the amount of sales made in each country. However, evidence from countries that have enacted a digital sales tax shows that the gains could be significant.

In 2014 South Africa became one of the first countries in the world to introduce specific legislation on VAT and digital services. The South African Revenue Service has said that it has collected an additional R600m a year since the introduction of the rules.

TaxWatch Executive Director, George Turner, said: “Big tech has for years traded on the myth that because they invoice their clients from offshore, they somehow have no obligation to pay any taxes. Our research demonstrates that this simply is not the case. If these companies have made significant sales in any country that levies VAT, then they should register to pay VAT locally.

“Google, Facebook and Microsoft wouldn’t get away with such an approach in Europe or North America anymore.

“I would encourage tax authorities across the continent to cast a close eye on the activities of these companies in their jurisdiction, and pursue them for any VAT payments that should have been made. This is likely to be a far more significant issue than any corporate tax avoidance engaged in by tech companies, as VAT makes up a far higher proportion of tax revenues than corporate profits.”

When questioned on the findings of this report, a Microsoft spokesperson stated: “Microsoft is fully compliant with all local laws and regulations in every country in which we operate. We serve customers in countries all over the world and our tax structure reflects that global footprint.”

Google did not respond to our requests for comment.

The report is available on our website here and in PDF here.

This research was featured in Law360 and PQ Magazine.

Digital Giants and VAT in Africa

12th July 2021 by Alex Dunnagan

12th July 2021

This report is available as a PDF here.

Summary

Multi-national tech giants such as Facebook, Google, and Microsoft (operating out of their Irish subsidiaries) are failing to collect VAT on sales they make in Africa – even in countries where they have local offices. This appears to be in contravention of local VAT laws requiring non-resident companies to register for VAT, and could be leading to large sums of tax going uncollected.

VAT and Digital Services

Value Added Tax (VAT), known as a goods and services tax (GST) in many jurisdictions, is designed to be a broad based tax on the final consumption of goods and services.¹ As such it is a major source of revenues for governments around the world. In Africa VAT accounts for on average around 30% of government revenues.²

VAT is a destination based tax, where the tax rate is based on the location of the consumer. The tax is usually collected by the seller, and is often applied to the sales price. Businesses can claim back the VAT that has been added to goods and services they have bought if they are used in the making of other supplies that are subject to VAT.

For example, a business selling cars adds VAT to the price of the cars it sells. It also buys advertising from a third party to encourage people to buy its cars. While the supply of advertising services to the car seller would be subject to VAT, the advertising firm would be able to offset that “output VAT” against its own “input VAT” costs, such as billboard hire.

When the car seller calculates the VAT they need to send to the tax authority, it is able to deduct the VAT it has paid on the purchase of the adverts. The effect of this is that VAT is assessed on the value added on each part of the production process but ultimately borne by the final consumer and collected by the final seller of the goods.

For similar reasons VAT is not charged on exports by a country exporting goods and services, but is charged on imports of goods.

VAT and the digital economy

VAT has been a particular problem for tax administrations when applied to digital services.

Goods imported into a country cross physical borders where checks can be carried out and taxes levied. Digital services provided remotely are not subject to border checks. This can make it very difficult for tax authorities to enforce VAT charges on digital services provided from abroad.

This is an issue that tax authorities and the OECD have been aware about for some time. In 2013 South Africa announced it would be one of the first countries in the world to introduce specific rules on VAT on digital companies.

The National Treasury stated at the time:

“The current application of VAT on imports does not lend itself to the effective enforcement on imported services or e-commerce where no border posts (or parcel delivery agents like the Post Office) can perform the function as collecting agents, as is the case with physical goods”.³

After initial regulations were introduced in 2014, which only applied to a limited amount of electronic services, further legislation came into effect on 01 April 2019, widening the definition of electronic services to include any “electronic services” supplied by an electronic agent, electronic communication or the Internet.⁴ ⁵ This widening of the net encompasses anything from software to advertising services.

In 2012 the OECD set up the Global Forum on VAT. This resulted in the publication of a set of guidelines for VAT in 2016.⁶ Following the BEPS process, the OECD recommended that countries adopt the guidelines to assist with combating tax avoidance in the digital sector in September 2016. These guidelines included the destination principle, which obliges non-resident sellers to pay VAT in the country that they sell their goods. This often requires sellers from overseas to register for VAT or to appoint a local agent to be responsible for their VAT payments.

In 2019 it was reported that there were over half a billion monthly internet users in Africa, more than in Latin America, North America, or the Middle East.⁷ As internet penetration in Africa grows, so to will the scale of the problem.

Do laws need updating?

The position of some companies is that without new legislation, there is no obligation to collect or pay VAT.⁸ Our research shows that the issue is with compliance and enforcement, not with the law itself. Legislation doesn’t need to be updated in order to require foreign digital advertisers to collect tax.

We found that the major suppliers of digital advertising services are not applying the law with regard to VAT in Africa, irrespective of whether or not legislation has been updated.

Looking at VAT legislation in many African countries, it is clear that non-resident companies are required to either register as a VAT vendor in the host country, or, to appoint a registered local representative.

Below we have highlighted a select few African countries where the standard message from digital advertising companies is that it is for the customer to self-assess, whether they should be paying VAT.

Algeria

Algeria introduced new VAT rules on foreign suppliers in January 2020,⁹ which confirms that operations carried out over the internet are subject to VAT, and that there is no VAT liability threshold.¹⁰

Angola

Angola introduced new VAT rules in October 2019, with a January 2020 Administrative Ruling stating that digital service suppliers are required to register with the Angolan Tax Authority, appoint a representative in country, to collect and pay VAT in Angola.¹¹

Cameroon

Cameroon changed its VAT rules for foreign suppliers of e-commerce in December 2019, with suppliers now having to register with the country’s tax authority in order to meet their obligations.¹²

Since October 2020, Facebook has begun adding VAT to Cameroonian invoices. Microsoft and Google have not followed suit.

Ghana

With a threshold of GH¢200,000 (approximately £25,000), VAT applies to the supply of telecom, broadcast, data and electronic services to consumers.¹³

Kenya

The Kenyan Revenue Authority has announced its intention to crack down on VAT dodging by tech companies, saying that it would work with the Communications Authority of Kenya to get information on which companies are selling into the country.

The KRA deputy commissioner for corporate policy, Maurice Oray, said:

“If you are a resident here, you are supposed to pay the taxes the normal way. If you are not a resident but you have an app that’s being used here, your tax representative (a requirement under Section 16 of Tax Procedures Act) must pay your VAT and income tax.”¹⁴

Since April 2021, Facebook has begun adding VAT to Kenyan invoices. Microsoft and Google have not followed suit.

Malawi

Though it wasn’t always the case, Malawi reintroduced VAT on internet service from July 2013.¹⁵ Malawi has a VAT threshold of MWK 10m (approximately £9,500).

Namibia

With a VAT threshold of NAD 500,000 (approximately £24,5000), there are no special rules for the taxation of the digital economy in Namibia.¹⁶

Nigeria

Section 10 of Nigeria’s Value Added Tax Act 1993 No.102, states:

“(1) For the purpose of this Act, a non-resident company that carries on business in Nigeria shall register for the tax with the Board, using the address of the person with whom it has a subsisting contract, as its address for purposes of correspondence relating to the tax.

(2) A non-resident company shall include the tax in its invoice and the person to whom the goods or services are supplied in Nigeria shall remit the tax in the currency of the transaction.”¹⁷

It appears companies such as Google, Facebook, and Microsoft are required to include VAT in their invoices so that the customer to whom the supply is made in Nigeria can remit the VAT to the tax authority. There is a similar situation in many other African countries.

Tanzania

The Tanzanian VAT Act was updated in 2015, clarifying that digital and electronic services provided to consumers are subject to VAT.¹⁸

Uganda

Uganda has clarified the requirements for foreign providers of digital services to levy 18% VAT on sales to local consumers, and that non-resident providers must register with the Ugandan Revenue Authority.¹⁹

Despite several of these countries updating their legislation, and many saying explicitly that VAT should be charged on the supply of digital services by foreign suppliers, it appears that the online advertising companies didn’t get the memo.

Digital advertisers in Africa

Google, Microsoft and Facebook all run their Europe, Middle East, and Africa (EMEA) operations out of Ireland. Despite being classed as one region for administrative purposes, the continent of Africa is treated very differently to that of Europe.

We made a test purchase of Google advertising in the UK, advertising TaxWatch, and received an invoice which did include VAT. However, according to Google’s own website it does not charge VAT on purchases made in most parts of Africa.

Any output VAT Google collects in relation to supplies to UK customers could be offset against Google UK’s input VAT expenses. By contrast, there is no such incentive to collect output VAT in those African countries where Google does not have input VAT costs. Absent the opportunity to offset input VAT, the incentive flips: VAT-free sales are preferred because the lower cost to the consumer is likely to boost sales volumes.

Outside of the European Union, and South Africa, customers seeking information on VAT on the Google website are told “Google can’t charge VAT if your billing address is in a country that’s not part of the European Union”.²⁰ The use of the word ‘can’t’ is clearly incorrect, because the company does charge VAT on South African accounts.

Instead, potential customers are told that they should self assess as to whether they should pay the VAT themselves. It is likely that many people do not self-assess, and any VAT that is required to be paid is lost. If those that are required to self-assess do not, then they themselves are committing tax evasion.

Google did not respond to our requests for comment.

Facebook appears to have a similar policy. Setting out the following on their website:

“If your country isn’t listed, that means we don’t have tax information for that country. Please contact your local tax authority for this information.”²¹

The site then sets out the position in a number of countries where VAT is added to the bill. The countries listed by Facebook include South Africa, Zimbabwe, and Cameroon where it is stated that VAT will be added to invoices where the customer is located in those countries. For Zimbabwe and Cameroon, this is a relatively recent addition with the site stating that it started to add VAT in those countries from late 2020. A Ghanaian Facebook advertising invoice seen by TaxWatch showed only the cost and an Irish VAT registration number – no VAT had been added to the bill.

When asked why Facebook doesn’t charge VAT on advertising sales made outside of the EU, the response we were given was:

“Facebook is registered, charging and remitting VAT in countries outside of the EU where applicable legislation has been implemented requiring foreign providers to tax the supply of electronic services (e-services). Tax regulations vary country by country. In general the e-services regimes apply to the supply of services to consumers. Advertising is, in general, supplied for business purposes. For example, in South Africa, the e-service VAT regime developed over the years and it is now applicable to the supply of e-services to both businesses and consumers. FB is registered, charges and remits applicable VAT. “²²

Facebook’s statement does not appear to be accurate. Ghana’s VAT Act specifically says that non-residents who provide “telecommunication services or electronic commerce” must register if they are likely to make sales exceeding 120,000 Ghana Cedis ($20,900) per year.²³ However, Facebook’s pages on VAT do not mention Ghana.

With a population of 30 million, we suspect that Google Ads likely exceeds this low threshold.²⁴ We questioned Google as to the value of their advertising sales in Ghana, but the company refused to comment. Microsoft’s website states explicitly that it does not charge VAT on advertising in African countries (outside of South Africa) – stating that it is not required to do so.²⁵

When questioned on the findings of this report, a Microsoft spokesperson stated “Microsoft is fully compliant with all Local laws and regulations in every country in which we operate. We serve customers in countries all over the world and our tax structure reflects that global footprint.”

Even without a physical presence, Microsoft operates in every country in which it does business. As a global seller of software and advertising, that includes African countries in which it is required to collect VAT.

All of these approaches appear to run counter to the law in many African countries, which states that non-resident companies should register for VAT if they are selling into those countries.

Legislation in many African countries is clear that non-resident companies are required to either register as a “VAT vendor” in the host country or to appoint a registered local representative. This is also stated in tax briefings prepared by large accountancy firms for the region.

Impacts

It is beyond the scope of this study to determine the impact of non-compliance on the continent as a whole. This would require substantial work to calculate and necessitate detailed knowledge of advertising sales in each country. It would also be complicated by the fact that many businesses that purchase advertising would largely be able to reclaim the VAT paid on advertising sales.

However, there are important consumers of advertising who do not provide services which are subject to VAT and therefore would be subject to VAT on their purchases of advertising. This includes political parties and NGOs.

In addition, commissions earned on online marketplaces (for example the Google Play Store) would be subject to VAT.

In South Africa, Prenesh Ramphal of the South African Revenue Service (SARS) has stated that between 2014 and 2019, the new regulations implemented there collected in excess of R600 million ($43 million) a year – around R3 billion ($215 million) in its first five years.²⁶ With the 2019 addition to the regulation casting the net further to include all electronic services, SARS can expect to collect even larger amounts of VAT in future years.

VAT legislation is clear that non-resident sellers should be collecting VAT on behalf of the local tax authorities. We believe that tax authorities on the continent should take a close look at whether the digital giants have incurred substantial VAT liabilities in their jurisdictions which have yet to be paid.

1VAT is collected fractionally, via a system of partial payments whereby taxable persons deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities. It is a consumption tax because it is borne ultimately by the final consumer.

2OECD, Revenue Statistics in Africa 2020, https://www.oecd.org/tax/tax-policy/brochure-revenue-statistics-africa.pdf

3Electronic Services Regulations, Parliamentary Monitoring Group, 04 February 2014, https://pmg.org.za/call-for-comment/162/

4Regulators widen definition of ‘electronic services’, IT Web, 07 June 2019, https://www.itweb.co.za/content/mQwkoq6KbYmv3r9A

5Prepare for tax in digital economy, Mail & Guardian, 24 May 2019, https://mg.co.za/article/2019-05-24-00-prepare-for-tax-in-digital-economy

6International VAT/GST Guidelines, OECD, 12 April 2017, https://www.oecd.org/ctp/international-vat-gst-guidelines-9789264271401-en.htm

7Last Month, Over Half-a-Billion Africans Accessed the Internet, Council on Foreign Relations, 25 July 2019, https://www.cfr.org/blog/last-month-over-half-billion-africans-accessed-internet

8Email from Facebook sent to TaxWatch 19 August 2020

9Algeria will levy VAT on Digital Services, Global VAT Compliance, 20 March 2020, https://www.globalvatcompliance.com/algeria-will-levy-vat-on-digital-services/

10Algeria enacts 2020 Finance Act, EY, https://taxnews.ey.com/news/2020-0159-algeria-enacts-2020-finance-act

11Angola VAT system introduced, replacing old consumption tax, Taxamo, 20 January 2020, https://blog.taxamo.com/insights/angola-vat-system-introduction

12Section 149c of the 2020 Finance Law, it states “The VAT due on commissions received on sales in Cameroon through e-commerce platforms shall be declared and paid into the Treasury by the operators of these platforms”, https://www.prc.cm/en/multimedia/documents/8033-law-2019-023-of-24-dec-2019-of-2020-financial-year

13Ghana VAT on foreign B2C digital service providers, Avara, 22 November 2015, https://www.avalara.com/vatlive/en/vat-news/ghana-vat-on-foreign-b2c-digital-service-providers.html

14Kenyan Revenue Authority to commence taxing income-generating apps, Techpoint Africa, 15 August 2019, https://techpoint.africa/2019/08/15/kenyan-revenue-authority-taxing-apps/

15Malawi re-imposes internet services VAT, Avalara, 29 July 2013, https://www.avalara.com/vatlive/en/vat-news/malawi-re-imposes-internet-services-vat.html

16Namibia – Indirect Tax Guide, KPMG, https://home.kpmg/xx/en/home/insights/2019/02/namibia-indirect-tax-guide.html

17Nigeria Value Added Tax Act 1993, https://www.firs.gov.ng/sites/Authoring/contentLibrary/035860b3-9ecf-400f-8d03-4335e4be5d19Value%20Added%20Tax%20(VAT).pdf

18Tanzania VAT changes, Avalara, 02 July 2015, https://www.avalara.com/vatlive/en/vat-news/tanzania-vat-changes.html

19Uganda VAT on foreign e-services, Avalara, 27 October 2019, https://www.avalara.com/vatlive/en/vat-news/uganda-vat-on-foreign-e-services.html#:~:text=Uganda%20has%20clarified%20the%20requirements,online%20clubs%3B%20and%20dating%20websites.

20Taxes in your country, Google Support, https://support.google.com/google-ads/answer/2375370?hl=en-GB

21Will I be charged tax on my purchases of Facebook ads?, Facebook, 16 July 2020, https://www.facebook.com/business/help/133076073434794

22Email sent to TaxWatch 19 August 2020

23Section 6 of Value Added Tax Act 2013, https://gra.gov.gh/wp-content/uploads/2018/11/vat_act_870.pdf

24Alphabet Inc. 10-k for fiscal year ended December 31 2018, reveals that the revenue for Google Ads in the Europe, Middle East and Africa (EMEA) region was $44.5bn in 2018. This means that Google would only have to generate 0.000047% of its EMEA revenue from Ghana in order to cross the threshold requiring the company to register for VAT.

25Tax or VAT information, Microsoft Ads, https://help.ads.microsoft.com/apex/index/3/en/52032

26New VAT rules lead global tax reform, Mail & Guardian, 26 April 2019, https://mg.co.za/article/2019-04-26-00-new-vat-rules-lead-global-tax-reform

Will Facebook, Google, eBay and Amazon pay more in UK tax under the new global tax deal?

8th June 2021 by Alex Dunnagan

TaxWatch analysis shows that package agreed at the G7 would lead to a tax cut for tech companies subject to the Digital Services Tax

On Saturday 5th June G7 finance ministers announced an agreement on changing the tax rules for global multinational companies. The deal was a significant change to the current global tax rules, introducing unprecedented restrictions on the use of tax havens, and a new system of apportioning profit made by large multinationals between countries.

Talks on reforming the global tax system started almost 10 years ago in the UK at the Loch Erne G8 conference. The process was set up in response to a number of scandals that had broken about the use of tax havens by global tech companies in particular. For that reason much of the focus of reform has looked at the tax affairs of global technology giants such as Facebook, Amazon and Google.

In this note we set out our analysis of the consequences of the deal for the UK Tax liabilities of the largest global technology companies that would be covered by the Digital Services Tax (DST).

Our analysis is based on the known shape of the deal as announced by the G7 on Saturday 5th of June. The terms of the deal may still change, and some details still need to be negotiated and are as yet unknown.

In order to analyse the position of the companies in our study we have relied on historical data and had to use some estimates of revenues generated in the UK. For these reasons the figures we have produced should not be taken as the definitive answers to how much tax liabilities will increase under the deal. However, we believe our research provides a strong foundation for an analysis.

We have used data from 2019, as that is the latest year that UK accounts are available for the companies in our study.

We find that the tax liabilities for Amazon, Facebook, Google and eBay in the UK arising from the so called Pillar One proposals are below or at the same level as their current UK tax liabilities. This means that if the new liabilities from Pillar One are additional to current tax liabilities these companies will see their tax liabilities increase. If the Pillar One allocation is not additional, but offset against existing liabilities, there will be very little change to the tax liabilities of these companies in the UK.

However, when looked at as a whole, the package of reforms announced in the G7 Finance Ministers and Central Bank Governors Communiqué could result in very substantial tax cuts for some digital companies due to agreement to remove the Digital Services Tax, which would raise significantly more from these companies than any new liabilities faced under the Pillar One proposals.

No additional revenues would be raised from tech companies in the UK under the Pillar Two proposals.

Pillar Two

The element of the deal that has attracted the most attention is the so-called Global Minimum Tax Rate. This will see countries impose a minimum 15% tax rate on the profits of multinational enterprises. The global minimum will be imposed by the home nation of a multi-national enterprise. This means that if there were any liabilities arising from Pillar Two on tech companies, they would be paid to the United States Government.

Pillar One

Under the Pillar One proposals companies see a portion of their global profits re-allocated to countries where they have a market where they are charged at the local rate.

The allocation formula set out is that a company gets an allowance of 10% of their revenues. Any profit above this is considered to be a “super-profit” and 20% of these super profits are reallocated to countries where they operate.

Currently the proposal is that Pillar One would only apply to one hundred of the largest companies in the world.

We have sought to analyse what this would mean for the companies in our study based on their 2019 accounts, the latest year for which we have full data. We have then allocated the distributable super profit to the UK based on the UK market share these companies have from our estimates undertaken for previous analysis.

We have then compared the tax charge that would arise in the UK from these allocations to the current tax charge these companies have in their UK companies. Again this figure is taken from our analysis of profit shifting by big technology companies.

For Amazon, we have limited the analysis to Amazon Web Services. This is because Amazon as a whole falls out of Pillar One due to its profit margin being below 10%. However, there is an idea being considered to apply Pillar One to particular business segments within large companies. Amazon Web Services, which in 2019 had revenues of $35bn and accounted for over 50% of Amazon’s global profits would likely qualify for Pillar One in itself if it was agreed to apply Pillar One to individual business segments.

Pillar One proposals 2019 analysis	eBay	Amazon (AWS only)	Google	Facebook
Global revenue	$8,636,000,000	$35,026,000,000	$161,857,000,000	$70,697,000,000
Global profit margin	20.25%	26.27%	24.48%	35.10%
“super profit” (margin -10%)	$885,400,000	$5,698,400,000	$23,439,300,000	$17,742,300,000
20% of super profit	$177,080,000	$1,139,680,000	$4,687,860,000	$3,548,460,000
UK portion of total sales	15.00%	6.25%	9.00%	5.45%
UK portion of super profit	$26,562,000	$71,207,147	$421,907,400	$193,406,303
Exchange rate on balance sheet date	0.75	0.75	0.75	0.75
UK Pillar One charge (@19%)	£3,803,864.07	£10,197,361.22	£60,420,088.81	£27,697,134.56
UK current tax charge	£5,260,000	£14,582,000	£58,987,000	£40,049,000

The Digital Services Tax

The UK Digital Services tax was first announced in 2018 and came into effect in April 2020. The tax applies to the UK sourced revenues of large multi-national companies providing social media services, search engines or online market places. The tax is levied at the rate of 2% on revenues above £25m, with a discount for any corporation tax paid.The tax is counted as a business expense, and so deductible against revenues for the purpose of working out profit for corporation tax liabilities. This means that if a company books their revenue in the UK, they will see a reduction in their corporation tax bill as a result of the DST.

The purpose of the DST was to target companies that the government determined were not paying a fair share of tax in the UK. The then Chancellor Phillip Hammond said of the DST in his Budget 2018 speech – “It is only right that these global giants, with profitable businesses in the UK, pay their fair share towards supporting our public services.”¹ It was always intended as a stop-gap ahead of a global deal on international tax reform.

The communiqué released by the G7 Finance Ministers and Central Bank Governors states that “We will provide for appropriate coordination between the application of the new international tax rules and the removal of all Digital Services Taxes [emphasis added], and other relevant similar measures, on all companies.”²

The removal of the UK DST is therefore part of the package of reforms announced by G7 ministers. The impact of removing the DST must therefore be considered when analysing the proposals.

We have tried to estimate the UK DST that would be placed on eBay, Amazon, Google and Facebook, using our previous work on looking at the sales these companies make in the UK.

For Amazon, the DST would only apply to the fees generated from sellers on the Amazon Marketplace. The Amazon 10-K disclosed that in 2019 Amazon made $54bn in fees to third party sellers. To estimate the UK portion of these fees, we have applied the percentage of Amazon’s total revenues that come from the UK which can be derived from their 10-K form to their disclosed figures for third party seller services.

Both Facebook and eBay book a substantial amount or all of their fees through a UK company. This means that the DST would be an allowable expense to deduct from their pre-tax profits and they would get a discount against their corporation tax liability arising from the DST. We have tried to account for this in our calculations of the total tax liability arising from the DST.

Our analysis shows that for every company that is subject to the DST, the Pillar One proposals would lead to substantially less money being raised in taxation in the UK. If the UK therefore goes forward with the removal of the DST, as the G7 communiqué strongly suggests it will, the package of reforms will lead to a net loss of tax in the UK from eBay, Amazon, Google and Facebook. While not the only companies likely to see a UK tax reduction as a result of the removal of the DST, these four are almost certainly the largest. Between them, based on 2019 revenues, these multinationals look set to pay £232.5m less in tax than they would under the DST.

DST 2019 analysis	eBay	Amazon (Marketplace only)	Google	Facebook
UK Revenues	$1,323,000,000	$3,359,046,970	$14,567,130,000	$3,853,290,000
£/$ rate	0.75	0.75	0.75	0.75
UK DST @2%	£19,443,458	£50,135,685	£219,091,036	£58,086,111.84
Discount on CT for UK booked sales	-£3,789,257	£0	£0	-£8,213,543
Total DST	£15,654,201	£50,135,685	£219,091,036	£49,372,568
UK Pillar One charge	£3,803,864	£10,197,361	£60,420,089	£27,697,135
Benefit from removing DST	£11,850,336.64	£39,938,323.60	£158,670,947.00	£22,175,433.80
Reduction from removing DST	75.70%	79.66%	72.42%	43.90%

Conclusions

The removal of the digital services tax as part of the agreement reached by the G7 creates significant winners and losers. Companies that are subject to the DST will all see a substantial taxcut arising from the G7 proposals.

This is because in all cases the DST liability is more than any increase in taxes under the Pillar One proposals.

There are some companies that will receive a particular benefit, being companies that are too small to fall under Pillar One, but would have been subject to the DST. This includes smaller social media platforms and online marketplaces.

However, the UK DST is narrowly defined and there will also be companies that do end up paying more in UK tax if they fall under the new Pillar One rules and were not part of the DST regime.

One key issue that needs to be addressed by negotiators is whether corporation tax currently being paid in a jurisdiction will count towards any liability arising under Pillar one. If it does, then all of the companies in our study will not see any significant change in their corporation tax liability in the UK arising from the agreement.

Detailed methodologies

Facebook

In order to estimate Facebook’s real revenues in the UK, we looked at Facebook’s average revenue per user (APRU), which is published in a chart, broken down by region, appended to the company’s US stock market filings. We then took the mid-point between the US APRU and European APRU basing this calculation on the assumption that the UK would be at the top end of the European APRU range, but less than the US. Using the online tool Napoleon Cat, we calculated an average of 42,000,000 Facebook users in the UK for 2019.

On the basis of these numbers we estimate Facebook’s revenues from the UK to be £2.9bn in 2019.

Facebook’s US 10-K shows a pre-tax margin of 35%.

Facebook bills larger UK clients via its UK company. As a result it can deduct a portion of its DST from its revenues before corporation tax is applied. We calculated that this would have led to a £8.2m discount on 2019 corporation tax liabilities at Facebook UK. This results in a total DST impact of £49.4m.

With the new Pillar One proposals, the amount owed would be £27.7m. The removal of the DST therefore results in a net tax cut of of £22.2m based on 2019 figures.

Google

Until 2016 Google reported the revenues it made from the UK in its US 10-K filing. On average, around 9% of Google’s global revenues came from the UK between 2014 and 2016. We applied this average figure to Google’s 2019 global revenues to estimate the revenues generated from the UK in 2019.

Based on 2019’s revenues, Google would stand to pay £219m in DST.

With the new Pillar One proposals, the amount owed would be £60.4m – a tax cut of £158.7m.

Should the percentage of Google’s global revenues arising from the UK have decreased since 2016, the result would be the same. The DST would remain higher than the pillar one charge. The proposals represent a tax cut for Google.

eBay

The online marketplace eBay launched in the UK back in 1999. eBay’s 10-K shows a global pre-tax margin of 20%, and UK revenues of £997,172,883 for 2019.

All of eBay’s fees are earned via a UK company, which means they would be able to deduct the DST from their taxable profit. This would result in a £3.8m discount leading to a total DST impact of £15.7m based on 2019’s revenues.

With the new Pillar One proposals, the amount owed would be £3.8m – a taxcut £11.9m.

However, it is possible that eBay would not fall into Pillar One, as it is much smaller than Facebook, Google and Amazon, and may not end up being one of the world’s largest, most profitable companies. If that was the case than the package of reforms would be of even greater benefit to the company.

Amazon

Amazon’s 10-K shows a global pre-tax margin of 5%. As such, it would not qualify for Pillar One, which only bites when a company has a profit margin of more than 10%.

However, Amazon Web Services, which accounts for more than 50% of Amazon’s pre-tax profits, has a margin of 25%, and so could qualify if the proposals applied to business segments within companies.

With regards to the DST, this would only apply to Amazon’s fees to third party sellers using its platforms.

Amazon publishes its total revenues from the UK market in its 10-K. It also publishes the total fees it generates from 3rd party sellers, and total revenues and profits at AWS.

We applied the proportion of Amazon’s business that takes place in the UK (6.25%) to AWS’s profits and fees generated from 3rd party sellers to calculate the DST liability and the pillar one liability for the UK.

Based on 2019’s revenues, Amazon would stand to pay £50.1m in DST.

With the new Pillar One proposals, the amount owed would be £10.2m – a taxcut of £39.9m.

This analysis is available as a PDF here.

1 Budget 2018: Philip Hammond’s speech, Gov.uk, 29 October 2018, https://www.gov.uk/government/speeches/budget-2018-philip-hammonds-speech

2 G7 Finance Ministers and Central Bank Governors Communiqué, Gov.uk, 05 June 2021, https://www.gov.uk/government/publications/g7-finance-ministers-meeting-june-2021-communique/g7-finance-ministers-and-central-bank-governors-communique

Eight tech companies in the UK avoided an estimated £1.5bn in 2019 – New Research

2nd June 2021 by Alex Dunnagan

£45.4bn in revenues
£9.6bn in profits
£296m in tax paid
£1.5bn in tax avoided

Eight large tech companies in the UK made an estimated £9.6bn in profit from sales to UK customers in 2019, a new analysis by TaxWatch shows.

But by moving money out of the UK, these companies ended up declaring a fraction of these profits in the accounts of their UK subsidiaries, radically reducing their tax liabilities.

Amazon, eBay, Adobe, Google, Cisco, Facebook, Microsoft, and Apple faced UK corporation tax liabilities of £297 million in 2019.

That puts the total amount of tax avoided by the companies in the UK at an estimated £1.5bn in 2019, the latest year where figures exist.

Large US-based technology companies have tens of millions of UK users and make billions in sales to UK customers. The UK is unarguably a significant source of corporate profits for these companies. But a glance at the accounts of their UK-based subsidiaries shows that little of this profit ends up in the UK.

As Finance Ministers seek to negotiate a new international settlement on how large multinational companies should be taxed, understanding the scale of tax avoidance by global digital giants is key to evaluating the outcomes of any deal.

The latest figures are an update on TaxWatch’s 2018 study, Still Crazy After All These Years, which looked at the activities of Google, Cisco, Facebook, Microsoft, and Apple, five of the largest technology companies in the world, over the period 2013-2017. Last year we updated these figures taking 2018 into account. This year three companies were added to our analysis, eBay, Adobe, and Amazon.

The full report is available here, and as a PDF here.

This report featured on ITV News, Channel 4 News, and in several newspapers.

Eight tech companies in the UK avoided an estimated £1.5bn in 2019

2nd June 2021 by Alex Dunnagan

2nd June 2021

Introduction and Summary

The UK market is an extremely important market for US based technology companies. These well known companies realise substantial sales in the UK and as such are some of the most significant economic operators in our country.

For example, In 2020 Amazon made £19.4bn in sales to UK customers, a 50% rise on the previous year and more than 20 times the largest physical bookseller in the UK, Waterstones.¹

It sold more goods to UK customers than Morrisons, the fourth largest supermarket chain in the country. The advertising revenues of Google and Facebook now surpass those made by ITV, or major publishers such as News UK, the owners of the Times Newspapers.

Given how profitable the digital economy has proved to be, the vast sales made by the global digital giants should result in these companies being some of the largest corporate tax payers in the UK. However, the accounts of the UK businesses of these major international companies show that very little profit is ever declared in the UK and as such, little corporation tax is paid on the profits these companies make from UK customers. These profits have instead re-appeared in tax havens where the company pays little or no tax at all.

TaxWatch has been tracking the tax payments, revenues and profits of the tech giants in the UK since we began in 2018. Each year we have sought to estimate the amount of revenues generated by UK customers of major tech companies, how much profit should be attributed to those sales, and how much tax has been avoided by these companies by moving their profits offshore.

This year our analysis takes on a special significance, as Finance Ministers seek to negotiate a new international settlement on how large multinational companies should be taxed. Understanding the scale of tax avoidance by global digital giants is key to evaluating the outcomes of any deal.

In 2018, we started by looking at the top five tech companies, Apple, Alphabet, Facebook, Microsoft and Cisco Systems. This year we have added Amazon, eBay and Adobe. The numbers we produce below are for the 2019 financial year, which is before the impact of the Covid-19 pandemic. The reason for this is that the UK accounts for the companies in our study are only available to 2019.

Our analysis has a simple methodology. We look at the global profit margin of a company, the percentage pre-tax profit the company make on every dollar of sales. This is the average profit the company makes across all operations in all jurisdictions. We then apply that average profit margin to the amount of sales made in the UK to calculate the amount of profit generated in the UK. The UK sales are either taken directly from the global accounts of the company where they are reported, or estimated using a variety of different methodologies. We then apply the UK headline tax rate to the amount of profit estimated for the UK, which gives us an estimate of the tax liability that each company should have in the UK. We then compare this to the actual taxes paid in the UK by their local subsidiaries.

It should be stressed that the figures we produce are estimates of the profits made by these companies in the UK. They are not definitive, however, in the absence of any accurate reporting on profits made from UK customers by major multinational companies, we believe our methodology gives a good understanding of the amount of profit made by each company in the UK.

We gave each company the opportunity to respond to our figures. Most declined. Amazon strongly disputed our figures. Facebook told us that they had long supported efforts to reform the international tax system and that currently the tax system does not allocate profits to where customers are located.

There are good economic reasons for taking this approach we have taken to attributing profit to the UK. As companies move into new markets, sales volumes increase and the marginal cost of production falls. As a result, the profit on each unit of sales increase. As most companies start in their home market and then move to new markets at a later stage of development then their profits will be higher in their foreign operations.

The accounts of the major tech giants appear to support this theory, with profit margins higher on non-US sales than on US sales. For example, in 2019, 79% of Facebook’s profits were made outside the US, even though non-US sales only accounted for 55% of revenues. Adobe reported that it made 86% of its profits outside the United States in 2019, despite the majority of its sales being to US customers.

By using the average profit margin across the group of companies, it means that the sales made in foreign jurisdictions share the costs of product development and other costs with the home jurisdiction. Our methodology therefore arguably underestimates the true scale of tax avoidance in some of the companies in our study.

Results

We find based on our estimates of profit arising from the UK market, that the eight global tech giants underpay their taxes by £1.5bn a year. The majority of this comes from just two companies. The largest tax avoider based on our methodology is Apple, which sees an underpayment of £518m, followed by Alphabet (Google), with £452m.

This is a significant finding. The current solution put forward by the OECD to redistribute profits made by large multinationals to countries like the UK (known as the Pillar One proposals) foresees a total tax benefit of between $5-$12bn across all jurisdictions (i.e. not just the UK) on an analysis which was based on a dataset of 27,000 multinational groups.²

In fact, the OECD proposal which would only seek to redistribute profits that exceeded “routine profits” set at a 10% margin may mean that a company like Amazon would not be impacted at all.

The impact of global minimum levels of taxation on the tech giants

Although US based global tech giants have traditionally paid very little in corporate taxation in markets such as the UK, companies do pay taxes in the US. Indeed, in defence of their position, Facebook told that they pay the majority of their taxes in the US.

This was clearly demonstrated in our research published in April 2020, which found that the effective tax rate of several large technology companies was four times higher in US than the rest of the world. In simple terms, this means that US corporations pay four times more tax on each dollar profit they make in the US than they do on each dollar of profit their make outside of the US.

It is important to be clear that the significant tax bills that these companies face in the US have historically not been the product of profits from Europe being moved back to the United States to be taxed there. Large US corporations with a significant presence both in the US and the rest of the world pay their taxes on profits arising from sales to US customers, but by moving profits out of foreign jurisdictions into tax havens, effectively eliminate taxes paid on taxes on profits declared in the rest of the world – which make up a significant amount of the total profits of these companies. The result of this is that the effective tax rates of these corporations have sat between the US headline rate and zero.

To some extent this changed in 2017, when US tax reform introduced a form global minimum taxation, the GILTI, a charge placed on the profits of US corporations declared in tax havens. In addition, the 2017 reforms included a form of tax subsidy on profits moved back to the United States, the FDII. This provided a powerful incentive for companies to move their profits back to the United States where they would be taxed at a lower rate.

More research is needed to look at how firms responded to this change. However it is clear that Google responded by moving more profit back to the US. This is clearly shown in the latest Google 10-K which shows that between 2019 and 2020 the amount of profit the company allocated to its international operations (which previously almost all arose in Bermuda) declined by more than 50% from $23bn to $10.5bn. All of that profit re-appeared in the United States which saw its share of Google’s profits jump from $16bn to $37bn over the same period. The net result of this is that US federal tax payments more than doubled from $2.4bn in 2019 to $4.8bn in 2020, whilst taxes paid to non-US governments declined from $2.7bn to $1.7bn.

All of this highlights the fundamental importance of distribution in any agreement on global tax reform that ensures that more profit is allocated to the countries where real economic activity, users and customers are located. Countries should also reserve the right to take unilateral action to ensure that profits are properly taxed in their jurisdiction regardless of any deal on global minimum rates.

Could a global minimum tax rate benefit the UK?

There has been much confusion over the idea of global minimum tax rates, with even some Finance Ministers appearing to misunderstand what a global minimum means in practice. A global minimum tax rate is not an agreement between all countries of the world to increase their tax rates above a minimum level.

Instead a global minimum can be imposed by countries on companies headquartered in their jurisdiction on profits that arise overseas (the US already has a form of global minimum taxation).

When a company moves profits into tax havens, the tax administration in its home jurisdiction places an additional tax charge to top up the tax payments of the company. This severely limits the potential benefits of a tax haven.

This means that in practice, it simply does not matter if any jurisdiction refuses to sign up to a minimum tax rate as the finance ministers of Ireland, or Hungary have threatened. If a jurisdiction adopts a tax rate below the global minimum imposed on a foreign multinational corporation operating in country, all that will happen is that the country with the lower rate will be giving up tax revenues to the multinational’s home country.

The negotiations at an OECD level are for OECD members and other jurisdictions to co-ordinate economic policy so that each jurisdiction will impose a minimum tax on its corporations, resulting in a patchwork of rules that will create a system of global minimum taxation.

Although global minimum tax rates therefore primarily benefit the home jurisdictions of any multinational companies they apply to, there are benefits to the UK of adopting the policy and there are broader benefits that arise to all jurisdictions. Firstly, the UK is itself home to a great number of multinational corporations that themselves avoid taxes on their foreign profits. UK participation in a system of global minimum taxation would therefore ensure that substantial amounts of revenues could be raised from UK multinationals.

Secondly, the policy mitigates against the tendency for some jurisdictions to engage in a race to the bottom through cutting taxes to encourage foreign multinationals to establish subsidiaries in their countries. It places a floor on the race to the bottom where previously there was none.

Thirdly, the disincentive to use tax havens means that profit shifting is less likely. There are multiple costs to profit shifting through the potential for enforcement action, reputational damage, and the cost of paying tax advisors to create schemes. Reducing the incentive on companies to engage in profit shifting may therefore mean that fewer companies engage in the practice. Less profit shifitng will benefit the UK.

Finally, there are also some measures currently being negotiated as part of the OECD global minimum tax rate package that seek to protect the tax bases of non-home country jurisdictions. But it is not clear how effective these will be.

However, as long as there is a difference between the global minimum rate applied to any particular company, and the headline corporation tax rate of the country where they operate, there will be an incentive for companies to shift profits could remain. For example, if the global minimum rate applied to US corporations by the US Government was 21%, and the UK headline rate rises to 25% as planned, then there will still be an incentive to move profits out of the UK and into tax havens, or back to the US.

As such, it is in the UK’s interests to seek to negotiate a global minimum rate of taxation at least as high as 25%, the rate which the UK Government is currently seeking to legislate for.

Figures

eBay

The online marketplace eBay launched in the UK back in 1999. eBay’s 10-K shows a global pre-tax margin of 20%, and UK revenues of £997,172,883 for 2019, which gives us an estimated profit on UK revenues of £201,951,765.

With the UK’s 19% corporate tax rate, this means eBay had an estimated UK tax liability of £38.4m.

eBay UK had a UK current tax charge of £5,260,000 in 2019.

Based on the above, we estimate eBay avoided £33m in UK taxes in 2019.

eBay did not respond to our request for comment.

Adobe

Adobe’s 10-K shows a global margin of 33%, and UK revenues of £616,487,008 for 2019, which gives us an estimated profit on UK revenues of £205m. With the UK’s 19% corporate tax rate, this means Adobe had an estimated UK tax liability of £39m.

Adobe Systems Europe Limited, a UK company, had a £2,040,000 tax charge in 2019.

Based on the above, we estimate Adobe avoided £37m in UK taxes in 2019.

Adobe did not respond to our request for comment.

Amazon

Amazon’s 10-K shows a global pre-tax margin of 5%, and Amazon have confirmed to us that their UK revenues for 2019 were £13,730,000,000,³ which gives us an estimated profit on UK revenues of £684m.

With the UK’s 19% corporate tax rate, this means Amazon had an estimated UK tax liability of £130m

Amazon Services UK Limited and Amazon Web Services UK Limited had a £14,582,000 current tax charge in 2019 between them.

It is the case that Amazon’s Luxembourg operation, which is the entity that charges UK customers, reports its profits and revenues directly to HMRC (although it does not provide figures for the UK publicly). We assume that this entity did not have a significant UK tax liability because its accounts show that it is loss making.

Based on the above, we estimate Amazon avoided £115m in UK taxes in 2019.

Amazon responded to our request for comment, with an Amazon spokesperson saying:

“These calculations are wildly inaccurate, and do not include the majority of taxes we pay in the UK. Our total tax contribution in the UK was £1.1 billion during 2019 – £293m in direct taxes and £854m in indirect taxes. During 2019, our international consumer business was loss-making as we continued to invest heavily.”

Alphabet (Google)

Alphabet’s US 10-K shows a profit margin of 24%. Using this margin, we estimate the profits on UK revenues to be £2,689bn.

At a 19% UK corporation tax rate, that would amount to a tax liability of £511m.

Google UK Limited’s accounts show a current UK tax charge for 2019 of £58,987,000.

Based on the above, we estimate Alphabet avoided £452m in UK taxes in 2019.

Alphabet did not respond to our request for comment.

Cisco

The accounts of Cisco Systems International report separately on the revenues the company makes from UK sales, which were £1,699,691,993 in 2019.

Cisco’s US 10-K shows a pre-tax margin of 28%. Using this margin, we estimate the profits on UK revenues to be £616m.

At a 19% UK corporation tax rate, that would amount to a tax liability of £117m.

In 2019, Cisco International Limited and another UK subsidiary, Cisco Systems Limited, were charged £48,919,131 in tax between them.

Based on the above, we estimate Cisco avoided £68m in UK taxes in 2019.

Cisco did not provide us with a comment on our findings.

Facebook

On the basis of these numbers we estimate Facebook’s revenues from the UK to be £2.9bn in 2019.

Facebook’s US 10-K shows a pre-tax margin of 35%. Using this margin, we estimate the profits on UK revenues to be just over £1bn. At a 19% UK corporation tax rate, that would amount to a tax liability of £194m.

Facebook’s UK accounts show a current UK tax charge for 2019 of £40,049,000.

Based on the above, we estimate Facebook avoided £154m in UK taxes in 2019.

We spoke with Facebook, who informed us that they have changed their structures to be more transparent about where they generate revenue, including in the UK. Facebook have stated that they have long supported the OECD process which is looking at new international tax rules for the digital company.⁴ They also said that currently the tax system does not allocate profits to jurisdictions where customers are located and pay the majority of their taxes in the United States.

Microsoft

Microsoft’s UK accounts do not disclose any information about how much the company earns from UK customers. All of the revenue earned by Microsoft’s main UK subsidiary, Microsoft Limited, is income earned from other Microsoft subsidiaries.

Microsoft’s UK sales are booked by an Irish subsidiary, Microsoft Ireland Operations Limited. Its accounts provided a figure for revenues earned from the UK until 2015. Between 2013 and 2015 the proportion of the company’s global revenues that came from the UK ranged between 3.12% and 3.6%.

To estimate revenues that Microsoft gained from the UK in 2019 we applied an average of 3.44% to the global revenue of Microsoft.

We estimate that Microsoft generated revenues of £3.4bn in 2019 from UK customers. This would yield an estimated profit of £1.2bn and a tax bill of £2225m in 2019. Microsoft Limited had a tax bill of £34,194,000 in 2019.

Based on the above, we estimate Microsoft avoided £191m in UK taxes in 2019.

Microsoft did not respond to our request for comment.

Apple

Our figures for how much revenue Apple makes from the UK market is derived from an estimate of the amount of money spent by UK customers on iPhones in the UK, which was constructed from data on smart-phone penetration and market research.

This shows that £6.3bn was spent on iPhones in the UK in 2017. This accounted for 6% of Apple’s global iPhone sales. If we assume that other Apple products have a similar market share in the UK, and that the amount UK is worth as a per cent of the global total remained the same, then in 2019 Apple would have made revenues of £12.7bn in the UK.

Applying Apple’s global pre-tax profit margin of 25% implies an estimated profit of £3,2bn and a tax bill (at the UK’s 19% corporation tax rate) of £610m.

Apple (UK) Ltd, Apple Europe Ltd, and Apple Retail UK had a £92,839,000 UK tax charge between them in 2019.

Based on the above, we estimate Apple avoided £517m in UK taxes in 2019.

Apple did not respond to our request for comment.

	eBay	Adobe	Amazon	Google	Cisco	Facebook	Microsoft	Apple	Total
Current UK Tax Charge	£5,260,000	£2,040,000	£14,582,000	£58,987,000	£48,919,132	£40,049,000	£34,194,000	£92,839,000	£ 296,870,132
UK Estimated Revenues	£997,172,883	£616,487,008	£13,730,000,000	£10,979,551,791	£1,699,691,993	£2,904,305,592	£3,408,827,130	£12,699,873,462	£ 47,035,909,859
Estimated Profits on UK Revenues	£201,951,757	£205,090,395	£684,047,882	£2,687,957,516	£616,194,000	£1,019,302,521	£ 1,183,417,748	£3,208,820,181	£ 9,806,782,000
UK Estimated Tax Liability	£38,370,834	£38,967,175	£129,969,098	£510,711,928	£117,076,860	£193,667,479	£ 224,849,372	£609,675,834	£ 1,863,288,580
Estimated UK Tax Avoided	£33,110,834	£36,927,175	£115,387,098	£451,724,928	£68,157,728	£153,618,479	£ 190,655,372	£516,836,834	£1,566,418,448

This report is available as a PDF here.

1 Amazon reports UK sales rose by 51% in 2020, The Guardian, 03 February 2021, https://www.theguardian.com/technology/2021/feb/03/amazon-reports-uk-sales-rose-by-51-in-2020

2 Tax revenue effects of Pillar One, Tax Challenges Arising from Digitalisation – Economic Impact Assessment, OECD, 12 October 2020, https://www.oecd-ilibrary.org/sites/0e3cc2d4-en/1/3/2/index.html?itemId=/content/publication/0e3cc2d4-en&_csp_=60cbdb3f912de71310706737fc50a27f&itemIGO=oecd&itemContentType=book

3 Email from Amazon to TaxWatch, 31 May 2021

4 Facebook boss ‘happy to pay more tax in Europe’, BBC News, 14 February 2020, https://www.bbc.co.uk/news/business-51497961

Netflix, tax reform and the unreal nature of digital taxation

8th December 2020 by George Turner

Netflix, tax reform and the unreal nature of digital taxation

Netflix has announced that it will be reporting the billions of pounds of revenues it gets from its European customers to their local tax authorities. In the UK, customers have received an email telling them they will now be billed by Netflix Service UK.

In making this move Netflix is the latest in a line of digital companies that have changed their structures to ensure that more revenue is declared to local tax authorities.

In each case where a company has changed their practices, it has come after pressure from the public and tax authorities.

Netflix is no different, the move comes after the company has come under increased scrutiny by organisations like TaxWatch, UK Parliament, and a number of European Tax Authorities.¹ ² This includes in the UK, where Netflix has disclosed that its previous tax returns are under examination,³ and in Italy, where the company is the subject of a criminal investigation.⁴

So what does this all tell us about the tax structures employed by large digital companies and the process of tax reform and tax collection in the digital sector?

Digital services and distance selling

The argument often made is that digital companies have changed the way business and business tax works because they can provide their services from overseas in a way that is not possible with the exchange of physical goods.

This distance selling model has been a common feature of the tax structures employed by a numerous multinationals operating in the so called digital space, including well known companies such as Google, Facebook, and Amazon.

This has been the model applied by Netflix. As detailed in our report from earlier this year, Netflix has billed all its international customers from a company in the Netherlands, and not declared that income to local tax authorities in the UK and other European countries.

The model relies on long established rules of international taxation, which say that a government can only tax the profits of a company that is based overseas if they operate via a “permanent establishment” in the country. By selling their goods and services from outside the jurisdiction, it is hoped that the country where the customer is based loses the right to tax profits made by the seller.

Although this model may have some effect in smaller economies, for large economies like the UK, this argument has always been slightly problematic.

Amazon, Netflix, Google, Facebook and other large US multinationals all have a significant presence in the UK. Google has built a London HQ with 7,000 staff at Kings Cross. Facebook has 23,000m² of office space in Central London. Netflix has a long term lease on Shepperton Studios and does large amounts of production in the UK. All own companies that are incorporated in the UK.

Under the traditional distance selling model, these local UK companies have no sales to UK customers. They simply provide services to a non-UK unit of their parent company. The amount that the UK company charges for the services provided is reimbursed at relatively low rates, meaning that little profit arises in the UK.

This structure is designed to preserve the idea that the Irish or Dutch company billing the customer is an independent entity with no physical presence in the UK, and so the UK has no rights to tax any profits on sales.

Distance selling in practice

A key question for tax authorities is whether these structures operate in practice as they do on paper.

One of the early pioneers of the distance selling model was not a digital services company, but Amazon, which grew as an online bookseller. When you buy something from the Amazon.co.uk website, you are buying from a company called Amazon EU S.à r.l. in Luxembourg, which then contracts with a company in the UK, Amazon UK Services Ltd, to “fulfil” the order.⁵

Amazon’s argument from a tax point of view was that the Luxembourg company that made all the sales, should be viewed as being entirely separate from the UK company which fulfilled the order, other than the contract between the two.

However, this was not how the company in fact operated. In 2013, Lush, the cosmetics company, sued Amazon for breach of copyright.⁶ Part of the argument deployed by Amazon in the case was that Amazon UK and Amazon EU were two entirely separate companies, which meant that Amazon UK should not be a party to the action.

Having examined the evidence of how the company worked in practice, the judge found that the two companies worked together in furtherance of a common plan, and that the idea that Amazon UK merely facilitates Amazon EU to be: “wholly unreal and divorced from the commercial reality of the situation.” ⁷

As outlined by academic Claire Quentin, the findings of fact in this judgment undermined the entire basis of Amazon’s tax planning, although it appears that little was done by tax authorities at the time to reclaim any taxes on this basis. ⁸

Pressure for change starts to impact on tax structures

Amazon did start to change its structure after that judgment, but for unrelated reasons.

In 2015, the UK government imposed the Diverted Profits Tax, which placed an additional charge on profits shifted out of the country. In 2015 Amazon responded to this via the establishment of a UK branch of its Luxembourg company that would file a tax return in the UK and account for sales from UK customers.

In 2016, after years of public pressure that criticised Facebook’s practice of billing its companies from Ireland, the company started to book sales from larger clients in the UK via its UK subsidiary. At the time, the reason given by Facebook itself was that for larger clients, its UK sales team were already responsible for making the sale.

Both of these examples raise questions of whether or not the distance selling model was ever in fact effective in the countries where the company operated a sales infrastructure. If Facebook staff located in the UK were booking sales to large clients based in the UK, what possible reason did they have for sending an invoice from a company in Ireland? Is it really possible to separate the sales and marketing function from all the infrastructure required to deliver a product?

The impacts of structural change

Although changes to corporate structures, ensuring that revenue raised in a country is reported to local tax authorities, is a more transparent way of operating and so welcome, it does not necessarily follow that there will be huge increases in corporate tax as a result. In order to increase the tax base, the underlying avoidance behaviour needs to be tackled. This is why in the past, TaxWatch has proposed imposing income tax on royalties paid by digital companies to tax haven entities.

In 2015, Facebook UK had a current tax charge of £4m. Despite revenues jumping from £211m to £842m the following year, the company’s current tax charge increased to just £5m.⁹

We do not know how much tax Amazon EU pays in the UK after it started declaring revenuesto HMRC in 2015, as the company does not publish its accounts on a country by county basis. However, as a whole, Amazon EU S.à r.l. does not it seems pay any corporation tax at all – in fact the company receives tax credits from governments.

All this means that even though Netflix Services UK will see its revenues increase next year by hundreds of millions of pounds after it starts to bill its UK customers, that is no guarantee that this will flow through into higher profits declared in the UK.

In fact, as we have pointed out, Netflix has substantial operations in the UK that qualify for UK film production credits. These credits can be offset against any profits that the company makes in the UK.

The European approach

Whilst the UK has generally looked at the distance selling model deployed by digital companies as an avoidance issue, and responded with new anti-avoidance rules to capture the avoided tax (like the Diverted Profits Tax), European tax authorities have taken a different approach to the very same issues.

In France, tax authorities opened an investigation into fraud after it alleged that Google had failed to declare activities in the country. Google settled the matter and paid a fine of €965m.¹⁰

In Italy, Italian prosecutors are currently investigating whether or not Netflix is guilty of tax evasion through the non-declaration of revenue from its Italian subscribers (because until now, that revenue has been declared in the Netherlands). The case is interesting in that it asks whether the physical infrastructure that Netflix owns to deliver content to its subscribers (including servers and cables) means that it is in fact trading via a permanent establishment.¹¹ Netflix has until now not had an office in Italy.

These cases demonstrate how different tax authorities around the world can look at the same problem and take a very different view over the approach to take, including what legal remedies to employ in order to combat suspected tax avoidance.

Tax Reform

When Google settled its dispute with the French Authorities, the company made a statement which said:

“We remain convinced that a coordinated reform of the international tax system is the best way to provide a clear framework to companies operating worldwide.”¹²

It may well be the case that tax reform is necessary in the digital sector to make the administration of taxation easier. There also may be tax policy reasons why governments would want to reform the tax systems to require a different apportionment of income between countries.

However, the need for tax reform has often been used as an argument that the tax system is unable to capture the income of multinationals today, and that we live in some new world unforeseen by current tax law.

This narrative can suggest to the public that governments are unable to levy taxes until reform materialises, and that they should overlook any sins of the past.

However, as has been demonstrated by the various actions taken by governments with regard to the distance selling models used by digital companies, tax authorities can often do more than people may think when they take a detailed look at the commercial reality of these schemes and testing them against their current tax law. On top of that, public pressure works, as has been demonstrated by the way that changes to company tax structures have often followed public pressure. All of this can be done without the need to wait for international tax reform, and given the slow nature of that process, continuing scrutiny of the tax affairs of multinationals by tax authorities and the public is essential.

Photo by freestocks.org on Unsplash

1 Netflix tax affairs debated in the House of Commons, TaxWatch, http://13.40.187.124/netflix_debate_parliament/

2 Parliament forces Netflix to respond to TaxWatch research, TaxWatch, http://13.40.187.124/netflix_responds_to_taxwatch_report/

3 Video streaming giant Netflix faces new probe into how it escapes UK tax bills, Daily Mail, 09 August 2020, https://www.thisismoney.co.uk/money/markets/article-8607869/Netflix-faces-new-probe-escapes-UK-tax-bills.html

4 Italy to Investigate Netflix for Failing to File Tax Return, Bloomberg, 03 October 2019, https://www.bloomberg.com/news/articles/2019-10-03/italy-said-to-investigate-netflix-for-failing-to-file-tax-return

5 Why is Amazon still paying little tax in the UK?, Tax Justice Network, 10 August 2018, https://www.taxjustice.net/2018/08/10/why-is-amazon-still-paying-little-tax-in-the-uk/

6 Ethical cosmetics company Lush takes ‘bullying’ Amazon to court, The Guardian, 30 November 2013, https://www.theguardian.com/money/2013/nov/30/lush-amazon-trademark-court-battle

7 Cosmetic Warriors Limited, Lush Limited vs Amazon.co.uk Limited, Amazon EU SARL, High Court, 10 February 2014, https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2014/181.html&query=(cosmetic)+AND+(warriors)

8 Risk-Mining the Public Exchequer, Journal of Tax Administration, 2017, http://jota.website/index.php/JoTA/article/view/142/118

9 Facebook UK Ltd, Companies House, https://find-and-update.company-information.service.gov.uk/company/06331310/filing-history

10 Google to pay $1 billion in France to settle fiscal fraud probe, Reuters, 12 September 2019, https://uk.reuters.com/article/us-france-tech-google-tax/google-to-pay-1-billion-in-france-to-settle-fiscal-fraud-probe-idUKKCN1VX1SM

11 Italy prosecutors open Netflix tax evasion investigation: source, Reuters, 03 October 2019, https://www.reuters.com/article/us-netflix-probe-italy-idUSKBN1WI0NE

12 France fines Google nearly €1 billion in ‘historic’ tax fraud ruling, DW, 12 September 2019, https://www.dw.com/en/france-fines-google-nearly-1-billion-in-historic-tax-fraud-ruling/a-50407433

The coronavirus is not an excuse for tech giants to cash in on taxpayer generosity

14th April 2020 by George Turner

Throughout the coronavirus crisis, technology companies have played an important role in efforts to combat the disease. Google has been using its data to monitor movements amongst the population and test the effectiveness of lockdown measures. Amazon has partnered with the government to deliver Covid-19 testing kits.

But will all of this work come at a price?

In the UK, TechUK, the industry group that represents Facebook and Google as well as many others has asked for the government to delay the start of the Digital Services Tax. The Times reports today that the argument being deployed by TechUK is that recent changes to the tax have widened the scope of the tax, causing an unexpected compliance burden that companies can not meet during the crisis. Tax experts consulted by the paper, as well as our own research, have found no such changes to the UK legislation.

The Digital Services Tax is a new tax that has been imposed on the revenues of social media companies, search engines and online market places – Facebook, Google, and Amazon. The tax, which came into effect just a few days ago, places a 2% charge on revenues generated by these companies from UK customers. Although it is a new tax, it is in effect an anti-avoidance measure designed to counter some of the aggressive tax avoidance schemes used by these companies. It only applies to companies with global revenues of more than £750m, meaning that only the very largest companies are caught by it. There is a generous £25m tax free allowance built into the scheme.

The UK is not the only country to implement such a tax. According to the US Tax Foundation, 14 countries in Europe have either implemented or proposed a Digital Services Tax at rates ranging from 2%-7.5%.

The proliferation of Digital Services Taxes is a direct result of the failure of the OECD to agree on a comprehensive solution to the problem of tax avoidance by large multinational tech companies. A failure that has resulted in governments losing billions of pounds a year in tax revenues. In the UK we estimate that just five companies manage to avoid taxes of £1bn a year by shifting profits offshore.

Looked at in this context, the UK’s Digital Services Tax is a relatively modest measure, with the government estimating that it will collect around £400m a year from around 30 companies. Staggeringly, this estimate includes a 30% allowance for companies putting in place measures to avoid paying the tax. These figures are speculative, and the Office for Budget Responsibility say they come with a high degree of uncertainty.

At TaxWatch, using information published by the Treasury setting out how the tax operates, combined with our research estimating the revenues that large tech companies derive from UK customers, we estimate that a delay to the Digital Services Tax would benefit Google to the tune of £187m and Facebook £39m.

If implementation was delayed it would offset a significant chunk of the total amount companies are giving to governments to fight the coronavirus. The bill for Google is almost as much as the total amount of free ad credits Google has offered to the World Health Organisation and over 100 government agencies around the world ($250m (£203m)) as part of their response to the Coronavirus. A survey of what some tech companies have offered as part of the effort to fight coronavirus is set out here – http://13.40.187.124/tech_company_covid_donations/

Unfortunately, TechUK’s lobbying efforts appear not to be just the actions of one overzealous industry group in the UK. There appears to be a concerted effort by tech companies to use the coronavirus as an excuse to loosen regulations in a number of countries.

Reuters recently reported that in India, industry lobbyists representing the same companies are co-ordinating a similar campaign to defer the Indian version of the digital services tax.

Back in the United States, the New York Times reports how a number of tech companies have used the coronavirus to lobby against a range of government policies from labour laws to privacy protections.

Lobbyists may have thought the coronavirus outbreak an opportunity to realise long standing campaign aims, but they may have underestimated the reputational damage their clients could suffer if they are seen to be exploiting the crisis. The Times of London today ran a lead article heavily critical of the move from TechUK.

Government support mechanisms are supposed to be in place to help businesses in distress. Given that large tech companies are set to do relatively well out of the crisis, perhaps now is not the time for them to be looking for a hand-out. It is certainly not the time for governments to get rid of policies designed to combat tax avoidance by the tech industry.

We asked TechUK for a comment, they did not respond.

This research has been featured in The Times and The Telegraph.

Photo by Markus Spiske on Unsplash

Tech companies and the response to Covid-19

9th April 2020 by George Turner

As governments around the world struggle to deal with the outbreak of Covid-19 our tech companies are keen to show that they are playing their part too. Over the last two weeks there have been a number of announcements from the world’s largest tech companies setting out what they intend to do to help people through the current crisis. In total, as of 8th April, we have counted that eight companies have donated a total of $1.2bn in cash and in kind to counter the impact of the coronavirus. They range from an $800m package announced by Google (over 50% of the total), to free use of software for coronavirus researchers from Nvidia.

But how generous are these donations? Firstly, it should be stressed that many tech giants are not experiencing the same dread economic consequences other industries are suffering. With many shops forced to close, the retailers that can are moving online which will benefit online advertising providers such as Google and Facebook. A massive shift to homeworking will surely benefit companies like Microsoft, and online marketplaces have seen large increases in traffic. Amazon announced last month it will hire 100,000 extra staff in the United States to handle the surge in demand caused by coronavirus.¹

More importantly, these donations are peanuts compared to the amount of money these companies have squirrelled away in tax havens over the years, depriving governments of tax revenues.

Until late 2017, when the US instituted wide ranging tax reform, US headquartered companies accumulated vast amounts of cash in tax havens.

In the tax world, there is some debate about whether this cash represented profits made outside the US, in market jurisdictions such as the UK, or US profits. Our research, which has looked at detailed US corporate filings, shows that as far as the companies themselves are concerned, the profits accumulated in tax havens are non-US profits.²

These stockpiles of cash came from profits made by US companies on sales of their products around the world. Using a complex series of transactions, often involving royalty payments or internal financing structures, profits were eliminated in the countries where these sales were actually made and transferred offshore to countries like Bermuda with a 0% corporate tax rate. The cash could not be transferred onto the United States, because untaxed foreign profits returned to the US would need to be taxed at the US federal tax rate, which at the time was 35%.

All of this changed at the end of 2017 when the Trump administration slashed the US corporate tax rate and introduced a new tax on the offshore cash holdings, which encouraged companies to bring their cash back into the US.

Up until 2017, US stock market listed companies regularly reported the amount of cash they held offshore. We can use these figures to understand how the total amount of profit these companies shifted out of non-US market jurisdictions over time. The amounts are truly staggering.

By 2017, Apple had accumulated $246bn in cash offshore, which is equivalent to the GDP of many small countries. Microsoft had accumulated $142bn.

A study from the Institute on Taxation and Economic Policy found that between Microsoft, Apple, Alphabet, Facebook, Cisco Systems, Adobe, Intel and Nvidia, these companies held $571bn in offshore tax havens by 2017.³

Companies still continue to move profits offshore from their non-US markets, however, reporting has slightly changed. Rather than report the increases in cash held offshore, companies now report the US tax charge they incur on profits declared in tax havens under new US anti-avoidance rules. We recently found that Netflix was subject to a tax charge of $43m in 2018 due to the US Minimum Tax on Foreign Entities. We believe that this is likely to be the Global Intangible Low Tax Income (GILTI) provision of the 2017 Trump Tax Reform. As we reported at the time, the disclosure that $43m is subject to the minimum tax rate suggests that between $327.8m and $430 of non-US profit was shifted into tax havens by Netflix in 2018.⁴

All of this puts the recent generosity of the tech giants into some context.

Overall, we calculate that the amount of cash donated by these tech giants accounts for just 0.22% of the total amount of profits accumulated in tax havens by the end of 2017. If we exclude Google, which makes up more than 50% of the total covid donations figure, the amount given comprises just 0.09% of tax haven cash accumulated.

Perhaps health services around the world would be better served if tech companies simply paid their taxes in normal times, rather than relying on handouts in a crisis?

We contacted Microsoft⁵, Apple, Alphabet, Facebook, Cisco Systems, Adobe, Intel and Nvidia, however, the above organisations either did not respond or declined to comment.

Company	ITEP Amount Held offshore (2017)	Financial Donations	Material Donations	Explanation
Microsoft	$142,000,000,000	$1,000,000		On 09 March, Microsoft announced they would donate $1 million to Puget Sound’s (region in Seattle) covid Response Fund.
Apple	$246,000,000,000	$15,000,000	20,000,000 masks	On 13 March, Apple announced that they had donated $15m to covid response efforts, and that they would match employee donations two-to-one. On 05 April, Apple announced that they had sourced 20m masks to donate for medical workers.
Alphabet	$60,700,000,000	$800,000,000		On 27 March, Google announced an $800m donation towards covid response. This included, but is not limited to, $250m in ad grants to the World Health Organization and other government agencies, a $400m investment fund to support NGOs and financial institutions, $340m in Google Ads credits to Small Business Banking, and $20m in Google Cloud credits for academic institutions.
Facebook	$2,870,000,000	$135,000,000	720,000 masks,	Facebook has made several announcements, as recently as 30 March, of $100m to aid journalists, $25m towards developing a treatment for covid, $10m to the Centre for Disease Control, and 720,000 masks, with millions more to come.
Cisco	$65,600,000,000	$225,000,000		On 22 March, Cisco announced $225m in donations, this includes $8m in cash, $210m in product, and $5m in grants to non-profits.
Adobe	$4,200,000,000	$3,000,000		On 24 March, Adobe announced a $3m donation, including $1m to the Red Cross and Red Crescent Societies, $1m to the Silicon Valley Community Foundation, and a commitment of $1m to match and double employee donations.
Intel	$46,400,000,000	$60,000,000		On 07 April, Intel announced $50m in a ‘pandemic response technology initiative’. Intel had previously announced $10m in donations towards supporting local communities.
Nvidia	$3,130,000,000	$0	Free access to software for covid researchers.	On 19 March, Nvidia announced covid researchers would be given a 90-day license to Parabricks, software that allows for analysis of genomes.

All donations correct as at 1700hrs BST 08 April 2020.

This research has been featured in Law360 and The Independent among others.

Photo by Mika Baumeister on Unsplash

1Amazon ramps hiring, opening 100,000 new roles to support people relying on Amazon’s service in this stressful time, The Amazon Blog, 16 March 2020, https://blog.aboutamazon.com/operations/amazon-opening-100000-new-roles?utm_source=social&utm_medium=tw&utm_term=amznnews&utm_content=COVID-19_hiring&linkId=84444004

2US effective tax rate over 4 times higher for tech companies, TaxWatch, 08 April 2020, http://13.40.187.124/us_tech_companies_worldwide_profits/

3Offshore Shell Games 2017, Institute on Taxation and Economic Policy, 17 October 2017, https://itep.org/wp-content/uploads/offshoreshellgames2017.pdf

4No Tax and Chill: Netflix’s Offshore Network, TaxWatch, 14 January 2020, http://13.40.187.124/reports/netflix_tax_avoidance/

5It is important to note that the Bill & Melinda Gates Foundation announced in February 2020 that they would spend up to $100m to improve the detection and treatment of Covid-19. To date, Bill Gates has donated $35.8bn worth of Microsoft stock to the foundation.

US effective tax rate over four times higher for tech companies

8th April 2020 by George Turner

A new study has shown that large technology companies have historically paid more than four times in tax on their US profits than on profits made in the rest of the world.

In our latest study, we looked at pre-tax profits reported by major multinational companies in the technology sector. Our study looked at Microsoft, Apple, Alphabet, Facebook, Cisco Systems, Adobe, Intel and Nvidia.

Under US stock market rules companies have to report the amount of their pre-tax profits that are made overseas and the taxes paid to foreign governments.

The study found that over the last five years technology companies have faced a tax rate of just 9.6% on profits generated outside of the US. By contrast, the same companies have seen a tax liability of 45% on profits generated in the United States.

Part of this significant gap is explained by the large, one-off tax bills faced by companies in the US to deal with historic tax abuse following tax reform in 2017. For example, in 2017 Apple faced a tax bill of 71% on its US profits. Google had an effective tax rate of 120% on its US profits. For some companies, these large charges also appear in 2018 and 2019 as new rules were issued by the IRS on how to account for the tax reforms brought in in 2017.

Average ETR 2015-2019	Microsoft	Apple	Alphabet	Facebook	Cisco	Adobe	Intel	Nvidia	Total
Foreign total tax rate	14.57%	8.21%	8.54%	5.21%	13.29%	6.94%	10.17%	3.12%	9.60%
Foreign income as % total	72.22%	67.31%	56.59%	66.06%	68.37%	67.14%	41.63%	57.74%	63.51%
US current tax rate	76.27%	68.44%	37.89%	52.42%	76.10%	32.22%	30.03%	10.06%	54.88%
US total tax rate	52.13%	48.08%	39.71%	48.36%	80.94%	20.81%	31.27%	3.75%	45.32%

However, pre-tax reform there were still very significant gaps between the rates these companies paid on US profits and on non-US profits.

In 2016, Google had a tax bill of just 7.6% outside the US and a rate of 28.7% on its US profits. In the same year, Facebook paid just 2.6% of non-US profits in tax, whereas in the US it faced a tax bill of 30.9% on US profits.

Recently, the gap appears to have closed, following significant tax cuts in the United States, which saw the headline rate of federal corporation tax fall from 35% to 21% in 2017. At the same time action by tax officials around the world has increased the focus on tax avoidance by multinational companies.

In 2019, the US based technology companies in our study had a total foreign tax bill of 13.6% on profits generated outside of the United States. The total US tax bill was 15.6% of US profits, or 25.4% on a current tax basis.

The worldwide average tax rate was 26% in 2019 when weighted by GDP.

The figures call into question the claims made by companies on why they pay so little tax outside of the United States. Frequently when challenged companies claim that the reason that non-US governments see relatively small tax payments in their jurisdiction is due to the fact that profits should be allocated to the United States – where the value of the product is created.

However, TaxWatch’s study shows that the majority of US tech companies state in their annual accounts that most of their profits are made outside of the United States. On average the companies in our study reported that 63.5% of their profits were generated outside of the United States.

In 2019, Facebook states that 79% of its pre-tax profit was made outside of the US. Adobe claimed that it made 86% of its profits outside of the United States, on which it paid a tax rate of just 7.2%. Nvidia, the maker of high end graphics cards made 50% of its profits outside of the US, on which it paid just 3.7% tax.

The study also showed significant differences between the corporation tax liabilities of different companies on their non-US profits.

Between 2015 and 2019 Microsoft paid 14.6% of its non-US profits in tax, whereas over the same period Nvidia paid just 3.12% of its foreign earnings in tax. Most companies achieved figures in the single digits.

To download a copy of this briefing in PDF – click here.

Photo by Allie Smith on Unsplash