Netflix UK Has Been Accused of Hiding Profits in the Netherlands
Netflix is one of the major tech giants that has faced tax controversies over the years. Most recently, Netflix United Kingdom was accused of hiding its profits in the Netherlands as a way to help reduce the amount of taxes that it pays in the U.K.
The Accusation
The accusations indicate that Netflix funneled up to £330 million in its profits that come from operations outside of the United States, directing those funds into tax havens. At the same time, it has received relief for some of its shows, such as from the U.K. for “The Crown,” as a way to help reduce its bill.
The think tank Taxwatch estimated that in 2018 alone, the amount of profits Netflix moved from its non-U.S. international operations, such as the U.K., and into low-tax jurisdictions, like the Netherlands, was $327 to $430 million (or £250 to £330 million).
Putting the Numbers in Perspective
To get a better sense of the accusations, take a look at the numbers associated with the profits of Netflix. The company has 10 million subscribers in the U.K. that pay over £860 million each year. Despite this, the government gave Netflix UK a rebate of £51,000 (€57,000) in 2018.
For more information, look at the Netflix UK financial filings, which indicate that the company had revenues of €48 million with pre-tax profits at €2.3 million. Those making the accusations say that this difference comes from the vast amount of money that the company has channeled via the Netherlands, where it has its European headquarters.
For further indication that Netflix is manipulating taxes to its advantage, consider that Netflix’s market value is $150 billion. Yet, to ensure that Britain continues to be a competitive spot for productions, Netflix claimed tax relief of £924,000. This relief can apply to high-quality TV shows that are produced in the U.K. and successfully undergo a “cultural test,” if the shows cost over £1 million to make per episode. This applies to “The Crown” on Netflix.
Last year in the U.K., Netflix spent $500 million to produce more than 50 shows with over 200 staff.
What Others Say
The shadow chancellor, John McDonnell, said that this research indicates that Netflix “rips off” public services. He argues that Netflix clearly has a substantial customer base in the U.K., along with property and employees, yet it uses tax havens to channel profits. For McDonnell, it is even worse that the company also claims tax relief as it channels its profits to avoid paying taxes.
McDonnell argues that based on this report, the government must take concrete steps towards the “digital services tax” that it proposed. As a reminder, the Office for Budget Responsibility estimates that this tax would make £30 million each from Netflix, Google, Amazon, Facebook, and similar companies.
What Netflix Says
Netflix says that it has done no wrong. It claims to always pay taxes in its countries of operation.
Not Just Netflix
Some of the other digital giants have also faced similar accusations. For example, Amazon revealed in September that it had received €241 million of tax credits the previous year (2018), although Brussels and the EU want it to pay fair taxes. This is done by having Amazon Europe based in Luxembourg and aggregating billions of pounds of sales from around the continent there. Those tax credits were reportedly the result of reporting pre-tax losses of €493 million in 2018, despite sales increasing 11.6 percent up to €28 billion. The European commission is trying to get more than €250 million from Amazon for these “illegal tax advantages.”
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