Netflix is to finally start declaring the £1bn-plus revenues it makes from millions of British subscribers each year to the UK tax authorities, a move likely to ramp up pressure on tech firms such as Google and Amazon to stop funnelling revenues through overseas tax jurisdictions.
Netflix, which has funnelled UK-generated revenue through separate accounts at its European headquarters in the Netherlands since launching in Britain in 2012, is to notify its almost 13 million UK subscribers on Tuesday about the change, which starts from January.
The change is likely to increase the amount Netflix pays in UK corporation tax and is expected to add to pressure on Google, Amazon and other tech firms that have been accused of funnelling revenues to low-tax jurisdictions to avoid tax.
Netflix, which has a market value of $215bn (£160bn), received a €57,000 (£51,000) tax rebate from the UK government in 2018, according to the latest financial filing at Companies House – despite making £700m from UK subscribers. However, the company declared just €48m in UK revenues in 2018, which it described as a fee from its Netherlands headquarters for services provided.
The TaxWatch thinktank estimated that in that year the company moved between £250m and £330m in profits from international operations outside the US, including the UK, to low-tax jurisdictions such as the Netherlands.
“As Netflix continues to grow in the UK and in other international markets we want our corporate structure to reflect this footprint,” said a company spokesman. “So from next year, revenue generated in the UK will be recognised in the UK, and we will pay corporate income tax accordingly.”
Revenue from British subscribers, who pay between £5.99 and £11.99 a month, has more than doubled from £500m in 2017 to an estimated £1.14bn this year.
Next year, Netflix UK is forecast to hit 14 million subscribers, generating £1.3bn in revenues, according to the data and analytics firm Ampere Analysis.
UK corporation tax is paid on profits, not revenues. However, the scale of the increase in the amount Netflix pays will depend on factors including the company’s significantly growing costs in areas such as its spending on British-made productions. On Wednesday, the Guardian revealed that Netflix has increased that spending in 2020 by 50% on last year to $1bn.
The company is estimated to pump at least half of the annual revenues it makes in the UK into boosting its content budget. Netflix UK will also now have to start paying the Dutch operation a service fee, just as it received one when British subscriber revenues were channeled through the Netherlands.
On Wednesday, the French tax authorities demanded that US tech companies including Facebook and Amazon started paying France’s new digital services tax to counter the relatively small amount paid on profits. The same day, Netflix announced it would start declaring revenues from its French subscribers locally, having already done the same for its Spanish operation on Monday.
So far the UK version of a digital services tax does not appear to be hitting the large tech firms’ bottom line. Google has told its tens of thousands of advertising clients in the UK that they would be charged an additional fee for ads served on Google and YouTube to cover the new 2% tax on revenues.
“As an international business, we pay the vast majority – more than 80% – of our corporate income tax in the US, which is our home country,” a spokeswoman for Google UK said. “We also pay all of the tax that is due in the UK. We continue to strongly support the OECD’s work to develop a new international framework for how multinational companies are taxed,” she added, referring to the Organisation for Economic Co-operation and Development.
Amazon does not have to pay the tax on products it sells directly to consumers, but traders who sell products on its site will face increased charges. However, Amazon UK will not be adding the charge to the cost advertising on its platform as Google has done.
“Our UK retail and Amazon Web Services revenues are recorded here in the UK and reported directly to HMRC,” said a spokesman. “In the UK we made a total tax contribution of £1.1bn during 2019 – £293m in direct taxes and £854m in indirect taxes.”