Chancellor misses out on £1bn in tax from US tech giants, think tank finds

The claims come amid a growing debate over taxing digital technology giants in the UK

Tech icons on an iPad
Five of the biggest US technology firms paid just £239m in UK corporation tax in 2018 Credit: AFP

Five of the biggest US technology firms paid just £237m in UK corporation tax in 2018 despite generating billions of pounds in profits between them.

According to a new analysis, the corporation tax bill for Apple, Google, Cisco, Facebook and Microsoft would have exceeded £1bn if profits were paid on UK customers’ bookings made in Britain.

The claims from TaxWatch, a think tank, allege the five technology firms made a combined profit of more than £8bn in the UK in 2018, based on revenue estimates for the true size of their British businesses.

All the US technology companies file accounts in the UK, but much of their sales are directed through overseas companies through their tax arrangements.

Their total sales and profits from UK users are not broken out separately. There is no suggestion this is illegal.

TaxWatch claims this meant profits earned from UK consumers, through digital advertising or product sales, were not recognised in Britain.

Britain's Chancellor of the Exchequer Sajid Javid
Britain's Chancellor of the Exchequer Sajid Javid  is expected to introduce a Digital Services Tax in the Budget in March Credit: HENRY NICHOLLS /REUTERS

According to Companies House filings, Apple paid £71m UK tax for its three UK businesses, Microsoft paid £24.7m, Facebook £30m, Google £73m and Cisco £40m.

Based on US profit margins and estimates of the companies’ actual UK revenues, TaxWatch alleged that the Chancellor could be missing out on £1.3bn in corporation tax.

Microsoft said it was fully compliant with all local laws. “We serve customers in countries all over the world and our tax structure reflects that global footprint,” a spokesman said. 

An Apple spokesman said: “We pay all that we owe according to tax laws and local customs wherever we operate.”

Google, Facebook and Cisco declined to comment.

TaxWatch admits some of its figures are based on partial information. For example, its figures for Apple are only based on iPhone sales data for the UK, rather than its total income from all devices.

However, the US firms rarely break out the size of their UK businesses. UK accounts for Facebook, for example, reflect its UK marketing, sales support and services income, but not its full digital advertising business.

TaxWatch’s George Turner said: “Due to these companies implementing complex financial structures to take these profits offshore, these companies only paid a combined total of £237m in taxes on these profits in the UK.”

The pressure group is backed by Julian Richer, the founder of Richer Sounds, who has been outspoken on international tax issues.

The figures come amid a growing debate over taxing digital technology giants in the UK. The Chancellor is expected to introduce a Digital Services Tax in the Budget in March, which will implement a 2pc tax on digital revenues on companies with over £500m in online sales - largely hitting big US Tech firms.

The Treasury has claimed such a tax could raise £400m a year. However, US officials have condemned the planned tax as punitive and threatened to impose rival levies on countries that act unilaterally.

The debate over the UK’s digital tax comes amid ongoing negotiations at the OECD, where economists are attempting to reach a compromise over taxing technology companies internationally.

A source close to one tech firm said it was in favour of the OECD process in developing a “global solution” for digital tax rules.

The UK’s Digital Services Tax would see it acting alone. France had introduced a similar measure, but agreed to suspend it after the US threatened to impose tariffs.

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