British lawmaker Dame Margaret Hodge has piled into Netflix over its tax affairs after a report last month accused the streamer of funneling as much as $430M of its international profits into tax havens.
Hodge secured a debate on Netflix in British Parliament late on Monday evening, and said the company was carrying out a “superhighway robbery” by minimizing its tax bill, while at the same time receiving more than $1M in tax credits in the UK for shows like Sex Education.
“I am all for encouraging Netflix’s growth here, but I am afraid that that in no way mitigates its refusal to pay its fair share of tax,” the former chair of Parliament’s Public Accounts Committee told MPs.
“The situation is scandalous, intolerable and unfair. It is the sort of behavior that really winds up the British public, most of whom are law-abiding taxpayers who never try to avoid their duty to pay taxes.”
Her comments follow a report by British think-tank Tax Watch last month, which said that, like other major tech companies including Google and Amazon, “there is little doubt that Netflix has structured itself to avoid paying tax.”
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Tax Watch estimated that between $327.8M and $430M of profit from outside the U.S. was moved to low tax jurisdictions, such as the Netherlands, where Netflix operates a complex web of companies. It used the UK as an example.
Netflix’s British company Netflix Services UK provides services to Netherlands-based Netflix International, which collects revenue from UK subscribers. Netflix Services UK’s revenue was just €48M ($53M) in 2018, while its profit stood at €2.3M. In reality, Netflix’s UK footprint is far larger, with Tax Watch estimating that revenue from its 10M British subscribers is likely to be worth £860M, or $1.1BN.
Tax Watch said it was “difficult to say” how this £860M figure would translate into profit. While it would be easy to conclude that higher revenue translates into higher profit, it’s a complex picture and Netflix’s international business has historically been lossmaking due to lower profits and investment in technology and staff.
Netflix has pointed to inaccuracies in the Tax Watch and made clear that it shut down its Cayman Islands-based company Netflix Global Holdings CV last year. The company also believes that its structure in the UK and Netherlands is typical of other global companies.
“We significantly simplified our tax structure last year. Netflix continues to invest heavily in the UK — spending more than £400M on local productions in 2019, which helped to create over 25,000 jobs and training placements,” a spokeswoman said. “We believe that international taxation needs reform and support the OECD’s proposal for companies to pay more tax in the countries where their operations help generate value.”
Hodge said the only solution is to make Netflix subject to the digital services tax, which will see U.S. tech giants pay a 2% tax on the revenue they make from UK users. The tax is slated to be introduced in April, but France has backed away from a similar initiative after it was threatened with a trade war by the U.S. “The case of Netflix is a scandal. If we want to stop this abuse, we can,” Hodge said.
Jesse Norman, the financial secretary to the Treasury, declined to comment on Netflix specifically, but played down the prospect that the digital services tax will be extended to streamers, saying the rules governing the tax “would have to be entirely rewritten.” Norman also welcomed Netflix’s £232 million investment in Shepperton Studios. “That is not a trivial act and is something that we should be aware of,” he added.
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