Netflix must pay its fair share of tax
Netflix made an enormous $2bn in global profits last year. But the tech giant isn't paying a penny to the UK taxpayer, writes Dame Margaret Hodge MP
I was recently catching up on the latest series of The Crown when I read the devastating news that Netflix is yet another corporate tax avoider. No longer can I enjoy binge-watching Olivia Colman’s spot-on portrayal of the Queen now I know I’m helping to fund another mega corporation to abuse our tax system. The California-based tech giant earns billions every year but isn’t paying a penny to the UK taxpayer. Instead, Netflix actually receives a £50k tax rebate from the UK Government.
Netflix, home to popular shows like Stranger Things and House of Cards, is the world’s biggest video streaming service with 167m subscribers. For many years it ran at a loss to secure this dominant market position, but it’s now operating in the black. Netflix’s global profit rose an enormous 61% last year to $2bn, but important new research reveals that UK taxpayers aren’t reaping any rewards from their recent success.
“Despite generating over a billion pounds in revenue in the UK market, Netflix was able to claim numerous tax reliefs totalling £617k”
The investigative think-tank TaxWatch estimates that Netflix had 11.62m UK subscribers in 2019 which generated a £1.1bn income for the company. However, none of that revenue is billed here because Netflix uses a Netherlands-based subsidiary to charge its UK subscribers. On the tiny £2m profit that Netflix claimed it made in the UK, it did not pay any tax at all.
The analysis by TaxWatch estimates that the real profit that Netflix made in the UK was £69m, and so the company should have had a corporation tax bill of £13m. The company instead uses a shady system of subsidiaries and shell companies based in tax havens to shift its profits and avoid paying any tax in the UK. In fact, Netflix’s biggest tax bill outside the US is the £72m it currently gives to the Brazilian government. If they can tax Netflix properly, why can’t we?
While these figures might seem like small fry in comparison with other infamous tax dodgers, what makes Netflix a particularly egregious example is that the company makes a net profit from the UK taxpayer.
Despite generating over a billion pounds in the UK market, Netflix was able to claim numerous tax reliefs and rebates. In 2018 Netflix received creative industry tax reliefs totalling £617k, leaving the company in £52k profit from the taxpayer. Start-ups or struggling businesses would absolutely kill for this kind of corporate welfare from the Government.
As Netflix is rapidly expanding its production in the UK this problem will only get much worse. To put things in perspective, one of my constituents in Barking working full time on London Living Wage earns £21,000 a year. It simply beggars belief that a billion dollar corporation like Netflix is earning more from the taxpayer than two and a half times the salary of regular hard-working people!
I know it’s nothing new that another big digital company is avoiding tax. I have spent the last decade campaigning for more corporate transparency, but the shady practices continue. They use international corporate structures designed deliberately for no other purpose than to avoid paying their fair share of tax. Last year we learnt once again how Google, Facebook, and Amazon all made billions of pounds in the UK but only paid corporate tax bills worth tens of millions of pounds. This is a fraction of what they should be paying!
These US companies use our infrastructure, rely on our highly-educated workforce, and need our NHS to keep their staff healthy but they are not paying their fair share back.
For years we have heard the tech industry claim that the reason they make little contribution to the UK public purse is because the real value is created elsewhere. But in the shocking case of Netflix we have a company clearly creating their content in the UK, with a large subscriber base here too, and yet they are claiming tax handouts.
Something must change in how we tax digital streaming services, the Government’s current approach is simply not good enough.
Dame Margaret Hodge is Labour MP for Barking and former chair of the Public Accounts Committee. Her adjournment debate on Netflix’s tax affairs is scheduled for Monday 3 February
Get the inside track on what MPs and Peers are talking about. Sign up to The House's morning email for the latest insight and reaction from Parliamentarians, policy-makers and organisations.