A new report released today by TaxWatch, finds that profit shifting by just five tech companies could be costing the UK up to £1bn a year in lost revenues.
The data, which is being released the day before the Chancellor gives his budget on Monday, shows that despite a supposed crackdown on international tax avoidance, government is still failing to grapple with the problem.
The report, seeks to estimate the amount of profits made by Facebook, Google, Apple, Cisco Systems and Microsoft on their sales from UK customers. This figure is then compared to the profit declared by the companies in their main UK subsidiaries.
In total Taxwatch estimates that in 2017 these five companies earned revenues of £23.4 bn from UK customers. TaxWatch further estimate that profit attributable to these sales was £6.6bn, which at the prevailing rates would have given a tax liability of £1.26bn.
The profits declared in the accounts of the UK subsidiaries of these companies, and their tax liabilities, were far less. In total, the accounts of the main UK subsidiaries of the companies in the Taxwatch study suggested a combined tax liability of £191m. This is more than one billion pounds less than we calculate would have been due if the accounts of the UK subsidiaries more accurately reflected the revenues and profits made from UK customers.
Commenting on the release of the report – George Turner – Director of Taxwatch said:
“The fact that tech companies have been engaged in industrial scale tax avoidance has been well known for a long time. Our study shows that the attempts by government both on an international and domestic level to tackle the issue have barely scratched the surface of the problem.
“HMRC estimates that corporate tax avoidance costs the UK just £700m a year. Although it freely admits that it does not count avoidance via profit shifting in its estimate of the ‘tax gap’, our study shows that the government is vastly underestimating the scale of tax avoidance by multinationals operating in the UK.
“At £1bn a year, the tax losses to the UK from profit shifting by just five companies are enormous. But the tech five are not the only companies doing this. The total losses to the UK from profit shifting will be much higher.
“Government must do much better to ensure that taxes on profits made in this country, are paid in this country. What is needed is a rethink by government and international bodies of how multinationals are taxed, and an acceptance that the current approach just isn’t working.”
The full report can be viewed on the TaxWatch website here.
This research featured in The Telegraph, The Financial Times, and The Guardian among others.
Title image background – by Mathew Schwartz on Unsplash