British Netflix accounts are ‘under examination’ by UK HM Revenue and Customs (HMRC). Despite concerns over the tax arrangements of some digital services, Netflix clarifies that the investigation to be no more than standard practice.
Netflix’s main European office is located in Amsterdam, which has become a favorite of technology companies due to its soft tax rules. Meanwhile, Netflix has its subsidiary in the UK that employed only 14 people at its London office, according to its most recent accounts.
Netflix generates around £863 million ($1.1 billion) from British users every year — but only declared revenues of £23.9 million in 2017, with a profit before tax of around £1.1 million ($1.4 million). Netflix reports low revenue figures in the UK because, similar to fellow US tech giants such as Google and Amazon, who also pay minimal tax, it positions the British operation as a service arm for its headquarters elsewhere in Europe. In Netflix’s case, its revenues from subscribers are booked in the Netherlands.
The company, Netflix Services UK, is described as a member of the Netflix corporate family and provides marketing and other support services to Netflix International BV. As such, HMRC would be looking into the transfer pricing deal between the British arm and its Dutch parent, which determines the amount of revenues that Netflix reports in the UK to test whether the revenue declared following the economic and arm's length principle.
The detailed of the investigation has not been officially revealed yet. HMRC clarifies that it could not comment on individual cases. However, HMRC has a very strong track record on challenging contrived tax arrangements. The tax authority will make sure that large businesses, just like everyone else, pay all the taxes due under U.K. law and don't settle for less. In 2017/18, HMRC secured over £9 billion in additional tax revenue from the largest and most complex businesses.
One of TPA’s technology partners Cygnet Infotech has developed a comprehensive VAT solution named R7VAT MTD, which is amongst others recently approved by HMRC for use by companies in the UK to automate and manage their VAT returns filing process but can also be used broadly within the EU.
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