Now Netflix is singled out for not paying UK taxes

Netflix is the latest US-owned company that is being singled out in the press over its tax arrangements in the UK.

Two weeks after it was reported that Cadbury, owned by Mondelez International, paid no UK corporation tax last year despite racking up £2bn of revenues and an operating profit of more than £95m, the Sunday Times has revealed that Netflix similarly paid no taxes despite £200m of revenue coming from UK consumers. In fact, the on-demand broadcaster banked an "income tax credit" of £35,000.

There is no suggestion that Netflix (or for that matter Cadbury) has broken any laws. It is simply another in a long line of businesses that routes its revenues through operations in lower-tax jurisdictions, as allowed under international tax laws. In this case until the end of last year Netflix's European operations are based in Luxembourg, where it paid just £513,396 tax on £415m in net income.

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

In Cadbury's case, it is paying the interest on a listed bond that was used to finance the takeover of the company by what was then Kraft in 2009. Under a tax break that was reviewed and left unchanged in 2012, that is a tax deductible expense which reduced its profit to zero in the UK.

Things are changing for Netflix. In response to a clampdown on European Union tax evasion it has moved its European headquarters to the Netherlands, although it is not known what tax rate it will pay there – and there has been controversy over 'sweetheart' deals agreed by the Dutch government with the likes of Starbucks.

Netflix is also now paying VAT in the UK under a tax reform unveiled by the government earlier this year that added the levy to 'intangible' services, with its bill this year expected to be around £70m. The company's UK business is a 'marketing' arm that employs 12 staff and made a six-figure loss for the year to December 2014, as it is currently funding an aggressive expansion. But it expects to begin paying UK corporation taxes this year.

Labour used the news as an opportunity to slam chancellor George Osborne, with shadow Treasury minister Richard Burgon telling ITV News that the government needs to "get a grip" on the issue and that the current tax row showed the folly of reducing the number of tax offices across the country.

New tax guidelines published by the OECD and welcomed by the British government could begin to tackle legal tax avoidance by large international firms by forcing them to be transparent over where revenues are booked, thereby allowing countries to reform their tax systems.