Last updated on December 14th, 2023 at 09:37 am

According to TaxWatch’s analysis, the UK branches of seven prominent tech companies paid £750 million in corporation tax, significantly below the potential £2.8 billion.

According to campaigners advocating for increased tax transparency, the UK may have lost out on approximately £2 billion in tax revenue in 2021 due to major tech firms diverting their profits to other locations. TaxWatch, a campaign group, has estimated that seven major US-based tech companies, including Apple, Microsoft, and Google’s parent company Alphabet, paid a total of £750 million in UK corporation tax and digital sales tax. This amount falls significantly short of the potential £2.8 billion in tax that could have been collected if profits were not redirected elsewhere.

The complex structures of large multinational corporations, often involving various subsidiaries worldwide, frequently make it extremely challenging for observers to accurately determine the amount of tax paid in the UK. This also raises questions about whether the sums paid align appropriately with the level of business activity conducted in the UK.

To address the absence of available data, TaxWatch projected the amount of UK tax that global corporations would have paid if their British subsidiaries reported profits at the same rate as their worldwide declarations. It’s important to note that there is no indication of illegal tax evasion by the companies in question.

Apple and Microsoft rank as the world’s top two public companies in terms of market value, while Alphabet holds the fourth position, following oil giant Saudi Aramco. TaxWatch’s analysis also encompassed Amazon and Meta (owner of Facebook, ranking fifth and seventh largest respectively), in addition to networking company Cisco and Adobe, the creator of Photoshop.

Based on available full accounts for the 2021 tax year, TaxWatch approximated that these seven companies generated £60.5 billion in revenues in the UK. From this total, the group estimated that the companies accrued £14.8 billion in profits in the UK, applying global profit margins.

At the prevailing UK tax rate of 19%, this would equate to an anticipated £2.8 billion in taxes. However, after examining the tax paid by the UK subsidiaries, TaxWatch calculated that they only contributed £753 million in UK corporation tax and digital services tax – a £2 billion deficit from what might have been anticipated.

It’s important to acknowledge that TaxWatch concedes that its figures are rough estimates due to the limited data provided in public company reports. They argue that this lack of transparency is a significant issue that could be addressed through country-by-country tax reporting. TaxWatch asserts that its figures likely present a “more realistic estimate” of profits derived from the UK, although Amazon has contested this, stating that the underlying assumptions are inaccurate.

All companies that responded to inquiries affirmed their compliance with relevant tax laws.

In April, the UK division of Microsoft announced a resolution to settle a £136 million tax obligation for previous years, after facing scrutiny from HM Revenue and Customs concerning its profit distribution.

Claire Ralph, Director of TaxWatch, highlighted, “Our investigation, supported by Microsoft’s recent resolution of previously undisclosed UK corporation tax for several years, illustrates how complex international tax laws can be manipulated by multinational corporations to channel profits away from the UK tax system. We urge the government to tackle the shortage of readily available information on the UK corporation tax contributions made by these massive global enterprises on the taxable profits they generate in this country.”

Established in 2018 by Julian Richer, the affluent founder of Richer Sounds, a high-fidelity audio retailer, TaxWatch originated from Richer’s frustration with what he perceived as the flawed corporate tax system in the UK.

Since its establishment, the group has observed shifts in tax policies affecting major tech firms, both in the UK and internationally. In April 2020, the UK introduced a digital sales tax in a bid to bring tax revenues more in line with the economic activity taking place in the country. This mandates that social media platforms, search engines, and online marketplaces contribute 2% of their revenues, contingent on their UK turnover exceeding £25 million.

Members of the Organisation for Economic Cooperation and Development (OECD), a forum of nations headquartered in Paris, are slated to implement a 15% minimum tax on corporate profits from the subsequent year. This measure is anticipated to diminish the allure of profit-shifting, though there remain uncertainties about its effective execution.

A spokesperson for Microsoft voiced the company’s support for a global approach to tax regulations that avoids distorting markets and prevents dual taxation. Meta acknowledged the concerns surrounding the taxation of multinational corporations and expressed backing for the OECD’s endeavors. Adobe affirmed its adherence to tax laws in every country where it operates. Amazon contested the findings of TaxWatch, contending that they were based on flawed assumptions and overlooked the fact that its non-US retail sector operated at a deficit.

Apple opted not to provide a comment, while Alphabet and Cisco did not respond to comment requests.