Netflix has been accused of funneling as much as $430M of its international profits into tax havens, while at the same time receiving more than $1M in tax relief in the UK.
A report by British think-tank Tax Watch said that, like other major tech companies including Google and Amazon, “there is little doubt that Netflix has structured itself to avoid paying tax.”
In a report, 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.
The think-tank examined Netflix’s operations in the UK to highlight how the company could be structured to lower its tax bill. 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.
Tax Watch questioned Netflix’s structure at the same time as pointing out that the company has received £924,000 ($1.2M) in tax reliefs in the UK for high-end shows. Dramas including The Crown and Sex Education are made for Netflix in the UK by British production companies.
“We believe that the Netflix case raises some real concerns about the operation of the high-end TV tax relief scheme, which could see it being used by companies to claim credits on production costs, whilst locating the income from those productions offshore,” it said.
Netflix is a strong advocate of the tax relief scheme and it is part of the reason why the company invested $500M in more than 50 UK shows last year, creating an estimated 20,000 jobs and apprenticeships.
A Netflix spokeswoman said: “Corporate taxation is an important and much-debated issue. Ultimately, it’s for governments to decide the rules when it comes to tax — and in every country in which we operate, Netflix respects those rules.” They added: “Some time ago we simplified our corporate structure and this included retiring Netflix Global Holdings CV, an entity based in the Caribbean.”
The complex tax arrangements of big tech firms is part of the reason why the UK government is pressing ahead with a digital services tax in April, which will see US tech giants pay a 2% tax on the revenue they make from UK users. The hope is that this will be more effective than taxing just profit. France has introduced a similar initiative, despite opposition from the companies impacted.