According to TaxWatch analysis, seven prominent tech companies’ UK subsidiaries paid £750 million in corporate taxes instead of a potential £2.8 billion
According to an estimate by a transparency advocacy group, the UK may have foregone approximately £2 billion in tax revenue in 2021 due to major tech corporations shifting their profits abroad. Seven prominent American tech companies, such as Apple, Microsoft, and Alphabet (the parent company of Google), are believed to have paid £750 million in UK corporate tax and digital sales tax, in contrast to an estimated £2.8 billion that would have been owed had profits not been redirected elsewhere. This analysis comes from TaxWatch, a campaign organization.
Large multinational corporations frequently employ complex corporate structures with various subsidiaries across the globe. In many instances, this complexity makes it extremely challenging for observers to ascertain the precise amount of taxes paid in the UK and whether these payments correspond to the level of business activity conducted within the UK.
To circumvent the absence of data, TaxWatch conducted an estimation of the potential UK tax liabilities of these global conglomerates if their British subsidiaries reported profits at the same rate as they do on a worldwide scale. It’s important to note that there is no insinuation of illegal tax evasion by the companies involved.
Apple and Microsoft rank as the world’s top two publicly traded companies based on market value, with Alphabet following as the fourth largest, behind Saudi Aramco, an oil company. The TaxWatch analysis also encompassed Amazon and Meta (the fifth and seventh largest companies, respectively), along with networking firm Cisco and graphics software producer Adobe.
According to TaxWatch’s estimates, these seven companies generated £60.5 billion in UK revenues during the 2021 tax year, the latest period for which complete financial reports are accessible. From this total, the group approximated that these companies amassed £14.8 billion in UK profits by applying global profit margins.
If we consider the UK’s tax rate of 19%, it would imply that £2.8 billion is the amount owed. Nevertheless, TaxWatch’s estimation, based on the tax payments made by the UK subsidiaries, suggests they only paid £753 million in UK corporation tax and digital services tax. This is considerably less—about £2 billion less—than what might be expected.
The group acknowledges that its figures can only provide rough approximations due to the limited data available in public corporate reports. However, it emphasizes that the lack of transparency is a significant issue that could be addressed through country-by-country tax reporting. TaxWatch argues that its figures are likely to represent a “more realistic estimate” of the profits generated in the UK, although Amazon disputes this claim, asserting that the underlying assumptions are flawed.
All of the companies that responded stated that they are in compliance with applicable tax laws.
In April, Microsoft’s UK subsidiary disclosed that it had committed to settling £136 million in back taxes after HM Revenue and Customs conducted an assessment of its profit-shifting practices.
Claire Ralph, the Director of TaxWatch, pointed out, “Our analysis, bolstered by Microsoft’s recent settlement of underdeclared UK corporation tax for multiple years, demonstrates how multinational corporations can exploit intricate international tax regulations to move profits outside the reach of the UK tax system.”
She further called on the government to address the dearth of publicly accessible data concerning the UK corporation tax payments tied to the taxable profits generated by multinational behemoths in the country.
Since its inception, the group has witnessed certain changes in how significant tech firms are taxed, not only in the UK but also in various other countries. In the UK, for example, a digital sales tax was introduced in April 2020, aimed at aligning tax collections more closely with the level of economic activity within the nation. Under this tax, social media platforms, search engines, and online marketplaces are obligated to pay 2% of their revenues (rather than profits) when their UK turnover surpasses £25 million.
Meanwhile, members of the Organisation for Economic Cooperation and Development (OECD), a forum of nations headquartered in Paris, are expected to implement a 15% minimum tax on corporate profits starting next year. This move is designed to reduce the attractiveness of profit-shifting practices, although there remains uncertainty about its successful implementation.
A Microsoft spokesperson expressed the company’s support for a global approach to tax regulations that do not distort markets and prevent double taxation. Meta acknowledged the frustration related to the taxation of multinational companies and affirmed its support for the OECD’s actions. Adobe stated its adherence to tax laws in all the countries where it conducts business. Amazon disputed the TaxWatch findings, asserting that they were based on erroneous assumptions and failing to consider the loss-making status of its non-US retail division.
Apple chose not to comment on the matter, while Alphabet and Cisco did not respond to requests for comments.
