UK lost £2bn in Big Tech tax

TaxWatch says lack of transparency underscores need for by-country reporting

New estimates reveal the UK may have missed out on as much as £2 billion in tax revenue in 2021, as major tech firms shifted their profits abroad.

Campaign group TaxWatch analysed the contributions of seven of the largest US-headquartered tech firms - Microsoft, Amazon, Alphabet, Apple, Meta, Adobe and Cisco - and found that they paid only £753 million in UK corporation tax and digital sales tax (DST), compared to an estimated £2.8 billion had profits not been routed elsewhere.

The analysis highlights the complexity of the international tax structures used by multinational corporations.

These intricate structures often obscure the true amount of tax paid in the UK, making it challenging for authorities to determine if tax payments align with the level of activity in the country.

In its analysis, TaxWatch estimates what these multinational companies would have paid in UK tax if their British arms had declared profits at a rate consistent with their global declarations.

The campaign group estimates that the seven companies generated approximately £60.5 billion in UK revenues during the 2021 tax year. Applying global profit margins, TaxWatch calculated that these companies made £14.8 billion in UK profits.

At the UK's corporation tax rate of 19%, this would result in £2.8 billion in tax liability.

But according to the group, the British subsidiaries of the seven companies contributed only £753 million in UK corporation tax and digital services tax (DST), a significant £2 billion less than anticipated.

TaxWatch acknowledges that its figures are rough estimates due to the lack of data available in public company reports. Moreover, the findings do not suggest any illegal tax evasion by the companies involved.

But it asserts that the lack of transparency underscores the need for country-by-country tax reporting.

"These seven international groups make limited financial disclosures by country, so tracking profits around the world to deduce what is UK sourced proved difficult," TaxWatch said.

Amazon has disputed TaxWatch's findings, stating that they are based on incorrect assumptions and overlook the fact its international retail operations outside the US were running at a loss.

All the companies that responded to TaxWatch said that they comply with relevant tax laws.

Microsoft's UK unit recently agreed to pay £136 million in back taxes for previous years after an examination by HMRC.

Claire Ralph, director of TaxWatch, said this is an example of corporations being able to abuse complex tax laws to underpay in the UK over several years.

She called on the government to address the lack of publicly available data regarding UK corporation tax paid by big multinational firms operating in the country.

Her call comes at a time when some countries and multinational organisations are seeking to tighten international tax laws.

Members of the Organisation for Economic Cooperation and Development (OECD) have agreed to introduce a 15% minimum tax on corporate profits from 2024, aimed at making profit-shifting less attractive.

While there is some uncertainty about whether this goal will be achieved, tech giants like Microsoft, Meta, and Adobe have expressed support for a global approach to tax rules that prevents market distortions and double taxation.

In separate news, last week, Microsoft said it had received notices from the US Internal Revenue Service (IRS) asking the company to pay an extra $28.9 billion, along with associated penalties and interest, in unpaid taxes.

Microsoft said it disagreed with the IRS' tax demand and will "vigorously contest" those claims through the IRS administrative appeals office.