MP complains of ‘devious’ tax avoidance by Netflix

Edmund Heaphy
Finance and news reporter
Netflix could be making as much as £68.5m in annual profit from its 11.5 million UK subscribers. Photo: Rafael Henrique/SOPA Images/LightRocket via Getty Images

The former head of the UK’s public accounts committee has branded tax avoidance by streaming giant Netflix (NFLX) as “scandalous, intolerable, and unfair.”

Netflix, according to Dame Margaret Hodge, “has deliberately constructed a devious financial structure that has no other purpose than to avoid paying their tax.”

“It is nothing less than superhighway robbery,” she said, complaining that the UK taxpayer “is being taken for a ride.”

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Speaking at a debate in the House of Commons on Monday, the Labour MP for Barking said that the streaming giant took more from the public purse than it contributed in corporate taxes.

“Netflix demands our attention for a number of reasons,” Hodge said. “Not only do they deliberately dodge their corporation tax bills, but they in fact receive monies from the public coffers through the high-end television tax relief.”

Hodge referred to figures compiled by think tank Tax Watch UK, which estimates that Netflix could be making as much as £68.5m ($88.7m) in annual profit from its 11.5 million UK subscribers.

Based on the country’s 19% corporate tax rate, a company should pay roughly £13m on profits of that size.

But, in large part because Netflix subscriptions are processed in the Netherlands, Netflix paid no taxes on its profits in 2017/18 and received almost £1m in tax breaks.

“And while HMRC fails to collect money from the corporation, the US government is extracting tax from the very same profits that they earn here and then hide in unknown tax havens,” Hodge said on Monday.

“Netflix create their content here, supported by grants they receive here through our tax credit system, and yet they pay tax on the profits they make here in the US. Frankly I say to the minister: You couldn’t make it up.”

Hodge asked the government to amend the upcoming digital services tax — which will see a 2% tax levied on social media platforms, search engines, and online marketplaces — so that Netflix would have to pay it.

Responding on behalf of the UK government, treasury minister Jesse Norman noted that some multinational companies avoid paying taxes by “entering into contrived arrangements to divert profits to low tax jurisdictions.”

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Norman noted, however, that the digital services tax was designed to tackle a different problem, and would have to be “rewritten entirely” to take into account the case of Netflix.

In a statement, a spokesperson for Netflix pointed to international proposals that would force companies to “pay more tax in the countries where their operations help generate value.”

“In the meantime, we comply with the rules in every country where we operate,” they said.

They said the Tax Watch report had a number of inaccuracies, noting that Netflix no longer has a Caribbean-based entity.

“Netflix continues to invest heavily in the UK — spending more than £400m on local productions in 2019, which helped to create over 25,000 jobs and training placements.”