Netflix is just one of the many global companies to be accused of failing to play fair when it comes to tax. Since 2012, all Netflix revenue from its UK customers has gone through its European headquarters in the Netherlands. This is a totally legal way for multinational companies to avoid UK Corporation Tax and similar taxes in other countries.
They have had a change of policy and are going to declare revenue in the country it’s actually earned. Great news for our Treasury’s bank account!
How much money is involved?
The think tank Tax Watch estimate that at least £250m has been moved to lower taxation countries. And this figure could be as high as £330m.
Netflix’s market value is £160billion. Yes, billion.
In 2018, in the UK alone:
- Netflix made £700m from UK customers
- They declared only around £44m in UK revenue, as the services fee from the European headquarters.
- Received a Corporation Tax rebate of £51,000 from HMRC
And business in the UK is looking good for Netflix. Subscriptions have shot up from £500m in 2017, to £1.14bn in 2020. This is set to rise even further next year, with a forecast of 14 million subscribers making the company £1.3bn revenue.
Why have Netflix made this change?
As reported in the Guardian, a Netflix spokesperson said: “As Netflix continues to grow in the UK and in other international markets we want our corporate structure to reflect this footprint. So from next year, revenue generated in the UK will be recognised in the UK, and we will pay corporate income tax accordingly.”
They are getting in touch with all their UK subscribers to tell them about this change, which starts in January.
Netflix have already done the same thing in Spain and France. It seems they are getting ahead of the game here.
There is a huge wave of support for developing a global way of tackling the tax position of digital multinationals. Several countries are trying to tackle the issue with a new digital services tax. But here, companies like Google and YouTube are simply passing the 2% of revenue cost on to their advertisers. Not the ‘bottom line’ effect that was intended.
Netflix have gone further with their arrangement and this may, simply by example, put pressure on similarly huge companies to do the same.
We’re in the money!
Not exactly. This is good news and a fairer approach to paying tax. But it’s not going to pay off the COVID-19 debt by itself. UK Corporation Tax is only payable on profits, not total revenue. So there will be some balancing of books coming into play. For example, Netflix investment in British-made productions will bring down the amount of taxable profit. And this was a $1bn spend in 2020 – up by half. But it does show a flexibility that hasn’t yet been demonstrated by other global companies.
Maybe that’s about to change…?