Uber is a case study in our complicity with tax avoidance

Uber is a case study in our complicity with tax avoidance

In the 2010s the true extent of aggressive tax planning practices by tech giants like Apple, Google and Facebook emerged. These behemoths simultaneously piled up billions of dollars in tax havens, embedded their products ever deeper into our lives and shattered parts of the non-digital economy. It was also during this period that we personally, together with governments of both hues, willingly – if not always knowingly – gave up our sovereignty and free agency to these giants.

Uber stands as a poster child for the tech industry’s aggressive, and at worst frankly immoral business activities. It’s also the exemplar of why we cooperated in that loss of control.

Like other tech companies Uber established a network of subsidiaries in tax havens as part of its tax planning. But as the decade wore on initiatives such as the OECD’s Base Erosion and Profit Shifting (BEPS) and exchange of information work started to undermine the effectiveness of Uber’s tax structure.

In early 2019 Uber decided to fine-tune its tax planning by moving a subsidiary previously located in Bermuda to the Netherlands. This was in part in preparation for its initial public offering, but also in response to European moves cracking down on aggressive tax planning involving tax havens. As a result of the move, Uber reportedly created a US$6.1 billion Dutch tax deduction which it will be able to offset against future profits.

Uber’s transaction provoked questions in the Dutch parliament, prompting the state secretary of finance, Menno Snel (the equivalent of New Zealand’s revenue minister, Stuart Nash), to deny ever meeting any Uber representatives about the matter. Snel found out that Uber’s promises of jobs (it now has over a thousand employees in its Amsterdam office) come at a political cost.

Uber responded that it was “committed to openness and transparency with tax authorities around the world” and “faithful to both the letter and intent of the laws in the many jurisdictions where we operate. Uber’s comments echo those of so many tech companies when challenged about their tax planning.

It will be no surprise to readers of Super Pumped: The Battle for Uber that Uber’s tax planning pushes the rules to breaking point. It’s the primary reason I refuse to use Uber.

I’m not alone in my distaste for such tax practices. New Zealand’s 2019 Tax Working Group in its final report commented: “The group has received many submissions about international taxation and the tax practices of multinational companies and digital firms. It is clear from the submissions that many people feel a deep sense of unfairness about the way in which the tax system deals with these firms. This is a worrying phenomenon: perceptions of unfairness have the potential to erode public support for the tax system as a whole.”

Although it’s easy to point the finger at Uber’s behaviour, at the same time it also illustrates how, despite apparently widespread public disdain for the aggressive tax planning activities of the tech sector, people continue to use their services.

For users the convenience and lower prices Uber offers outweigh any moral indignation about its tax and business practices. This is also true of other tech giants such as Apple, Amazon, Facebook and Google whose services and products are used by billions of people even as they facilitate live-streaming of mass-murder or pile up billions of dollars in tax havens. In effect, we love the sin but hate the sinner.

Exactly how much these tax practices cost New Zealanders isn’t clear. There is little public information available about the scale of the tech companies’ activities in this country let alone details of how much income tax they pay. Google, which has recently adopted “country-by-country” reporting as a means of giving more transparency to its results, did file financial statements for the year ended 31 December 2018. These show its income tax liability for the year was $398,341. (Intriguingly, the financials show the GST payable as of 31 December 2018 was $6,252,847 and that it owed over $81 million to an unnamed related party. I’ll leave you to guess where that might be located.)

By contrast, the last filed financial statements for the New Zealand subsidiaries of Facebook and Uber were for the year ended 31 December 2014. They, along with Mastercard and Visa, take advantage of Companies Office reporting requirements which only require overseas-owned subsidiaries to file financial statements if either their assets exceed $20 million or their total revenue is more than $10 million. Under the business model these companies appear to be using, the New Zealand subsidiary is usually paid a fee for “marketing” services provided to its parents. Unsurprisingly, these fees appear to be below the threshold for reporting.

The ability for the likes of Uber and Facebook to structure their affairs to minimise scrutiny is a direct result of a policy choice to put ease of business and lower compliance costs ahead of transparency. Apart from tax and a lack of transparency there are other downstream effects of that choice, namely a growing suspicion that New Zealand is a bit of an easy mark for money-launderers.

Even if the various OECD initiatives bear fruit and an international agreement is reached about the taxation of the digital economy, that will inevitably involve each government accepting a partial surrender of its sovereign taxing rights. This is particularly true of New Zealand because of our small size.

There’s a scene near the end of Danny Boyle’s Shallow Grave when Christopher Eccleston (an accountant) berates his flatmates Kerry Fox (New Zealand connection!) and Ewan McGregor (handsome journalist) for spending some of their ill-gotten gains. He warns them “That’s what you paid for it. We don’t know how much it cost.”

Similarly, although we pay little or nothing for Facebook, Google, Uber, Netflix and their ilk, the full cost to our society of a lower corporate tax take, oligopolistic business practices, a hollowed-out local media, toxic social media and the rise of fake news is still not clear.

Addressing the aggressive tax and oligopolistic practices of the tech companies requires addressing a complex set of linkages: Reversing the trend of the past 40 years towards looser regulation of businesses; determining an acceptable set of rules for international taxation which recognises the vast and relatively sudden economic changes brought by the arrival of the digital economy; and recognising our complicity in enabling this state of affairs. Over the coming decade who will demonstrate the courage to take on this challenge?

This article was first published on The Spinoff