The UK might have missed out on as much as £2bn in tax in 2021 from big tech companies shifting their profits elsewhere, according to an estimate by a group campaigning for greater tax transparency.
Seven of the biggest US-headquartered tech companies, including Apple, Microsoft and Google owner Alphabet, are estimated to have paid £750m in UK corporation tax and the digital sales tax, compared with £2.8bn in estimated tax due had profits not been routed elsewhere, according to TaxWatch, a campaign group.
Big multinational companies often have complicated structures using different subsidiaries around the world. In many cases that makes it near impossible for observers to calculate how much tax they have paid in the UK, and whether the amounts paid align with the amount of activity in the UK.
To try to get around the lack of data, TaxWatch estimated how much UK tax these global groups would have paid if their British subsidiaries declared profits at the same rate as they declare them worldwide. There is no suggestion that the companies involved have evaded taxes illegally.
Apple and Microsoft are the world’s two biggest public companies by market value, while Alphabet is fourth behind oil company Saudi Aramco. The TaxWatch analysis also included Amazon and Facebook owner Meta (fifth and seventh largest), plus networks company Cisco and Photoshop maker Adobe.
TaxWatch estimated the seven companies had made £60.5bn in UK revenues over the 2021 tax year, the latest for which full accounts are available. Of that, the group estimated that the companies made £14.8bn in UK profits, by applying global profit margins.
At the UK rate of 19%, that would mean £2.8bn would be due. However, by looking at the tax paid by UK subsidiaries, TaxWatch estimated that they only paid £753m in UK corporation tax and digital services tax – £2bn less than might be expected.
The group readily admits that its figures can only be rough estimates given the lack of data in public company reports, but said that the lack of transparency is part of the problem, which should be solved by country-by-country tax reporting. It said that its figures are likely to be a “more realistic estimate” of profits from the UK, although Amazon has disputed this, asserting that the underlying assumptions are incorrect.
All of the companies that responded said they complied with relevant tax laws.
Microsoft’s UK company in April reported it had agreed to pay £136m in taxes owed for previous years after HM Revenue and Customs examined its profit shifting.
Claire Ralph, director of TaxWatch, said: “Our analysis, backed up by the recent example of Microsoft’s settlement of UK corporation tax underdeclared over several years, proves how the complex international tax rules can be abused by multinational corporates to shift profits out of the UK tax net.
“We call on the government to remedy the lack of publicly available data about UK corporation tax paid on what taxable profits multinational giants make here.”
TaxWatch was founded in 2018 by Julian Richer, the millionaire founder of hi-fi retailer Richer Sounds, who had grown angry at the UK’s “broken” corporate tax system.
Since the group was founded the UK and other countries have made some changes to the way big tech companies have been taxed. The UK introduced a digital sales tax in April 2020 in an effort to increase tax take to reflect the amount of activity in Britain. Social media platforms, search engines and online marketplaces must pay 2% of their revenues – rather than profits – when their UK turnover exceeds £25m.
Members of the Organisation for Economic Cooperation and Development, a Paris-based forum of nations, are supposed to implement a 15% minimum tax on corporate profits from next year. The agreement is hoped to make profit-shifting less attractive, although there is some doubt over whether it will be achieved.
A Microsoft spokesperson said the company supports a global approach to tax rules that does not distort markets and prevents double taxation. Meta said that “we understand there’s frustration about how multinational companies are taxed” and said it supported the OECD actions. Adobe said it complies with tax laws in every country in which it operates. Amazon said the TaxWatch findings were incorrect and based on incorrect assumptions, ignoring the fact that its non-US retail business was loss-making.
Apple declined to comment. Alphabet and Cisco did not respond to requests for comment.
