Of course Uber doesn't pay much corporation tax

It only applies to companies that are actually making any money.

by Jack Torrance
Last Updated: 19 May 2016

After London’s transport regulator backed down (a bit) over plans to drown Uber in red tape, the capital’s black cab drivers have found another angle of attack. In a week where American tech giants like Google are under fire over their controversial tax arrangements, the Licensed Taxi Drivers Association is trying to tar the controversial ride-hailing app with the same brush.

‘Any four black-cab drivers pay more tax than Uber,’ its general secretary Steve McNamara told the Guardian, adding that it was immoral that the company doesn’t pay more corporation tax.

But Uber and Google are chalk and cheese. The former is a young, fast-growing start-up that’s spending a vast amount of privately raised investor cash on its growth and reportedly  made a staggering group-level loss of almost $1bn (£700m) in the first half of last year. The latter is listed on a stock exchange, has been around for the best part of 20 years and consistently generates profits running into the tens of billions.

It’s with good reason that companies like Uber don’t pay corporation tax. Charging it based on turnover or something else other than profit would discourage the risk-taking that’s often needed for entrepreneurs to create something great.

Uber's UK revenues were up more than tenfold last year to around £11.3m, and it generated a profit of around £900,000. It paid little more than £22,000 on those profits, way below the normal rate businesses usually pay. But that's because it offset losses from previous years to reduce its liabilities, in the words of Uber, 'an accounting principle to encourage investment that dates back to Benjamin Disraeli...not a loophole'.  

That’s not to say Uber isn’t creative about its international tax planning. It reportedly diverts profits from several markets around the world (including the UK) to its Dutch division, which is liable for a lower rate of tax. That might sound like an accountant’s slight of hand, but there’s a reasonable case to be made for profit transfers.

Most of Uber’s costs occur outside of the UK. The hundreds of millions of dollars it spends annually on R&D and marketing might be booked in the US but they benefit all of its subsidiaries, including that in the UK. So sending some of the on-paper profits back from here towards the mothership is not unreasonable.

Sending them via the low-tax Netherlands is obviously less justifiable, but the fact of the matter is that Uber as a whole is making massive losses in the hunt for growth, and loss-making companies aren't supposed to pay corporation tax. 

As Dixons Carphone boss Sebastian James told MT recently, 'There is no point moaning about Amazon paying no tax. In the UK it makes no profit, which is a brilliant way to avoid tax – we used it ourselves for a few years…' 

The LTDA’s protests also ignore the tax paid by Uber’s drivers themselves, who all work as independent contractors. The self-employed are often accused of using their position to avoid tax but, as Uber points out, the fact it doesn’t allow any cash payments makes that a lot more difficult.

There are plenty of problems with Britain’s system of business taxes, and continued disquiet over the share paid by multinationals shows it won’t go away soon. But the authorities should be looking to generate more tax receipts from profitable tech giants, not young upstarts that are actually haemorrhaging cash – even if they have got plenty of it.

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