by Jack Denton
Netflix reaped an estimated £940 million ($1.3 billion) from British subscribers in 2019, but the streaming giant paid just £3.2 million in U.K. corporation taxes that year.
It is the latest example of how national tax regimes are failing to capture the massive revenues made by U.S. technology giants in their borders.
According to recent filings from the three companies that Netflix /zigman2/quotes/202353025/composite NFLX +1.07% has registered with Companies House — the U.K. corporate registrar — the streaming giant reported £13 million in pretax profits and £120 million in U.K. revenue in 2019.
Of that, €86 million ($105 million) in revenue was made by one of those companies for operating as the marketing and support services arm of its European subsidiary in the Netherlands.
Netflix funnels revenues from its British subscribers through its international holding company in Amsterdam, in a practice common among large tech companies.
According to market research group Ampere Analysis, Netflix hit 11 million British subscribers in 2019, bringing the company around £940 million in subscription revenues.
“We pay all taxes required and are committed to playing an active role in supporting British production and creative talent for the long term,” said a spokesperson for Netflix, noting that the company is increasing its investment in British creative industries.
The company spent $1 billion on locally-made films, series, and documentaries in the U.K. in 2020. The £3.2 million in taxes — which are paid on profits — is the most the company has ever dished out to Her Majesty’s Revenue and Customs, largely as a result of Netflix’s investment in Britain.
“Corporation tax is an important and much-debated issue,” the Netflix spokesperson said. “We support the OECD’s proposed reforms, but ultimately it’s for governments to decide the rules on tax — and in every country in which we operate, including the U.K., Netflix complies with those rules.”
In the future, Netflix plans to alter its tax structure to be more localized, in line with its long-term plans in the U.K. This could mean that its revenues from British subscribers in 2020 will be reported to tax authorities.
The Organization for Economic Cooperation and Development, an intergovernmental organization of 37 largely high-income countries, proposed a shake-up of the global corporate tax regime in 2019, with a view to making tech giants pay more taxes in countries where internet users bring them significant revenues.
The OECD reforms have yet to materialize. Meanwhile, countries including France and the U.K. have begun instituting their own digital taxes in an attempt to claw back domestic revenues.
Roya Sanei, a spokesperson for Ampere Analysis, told MarketWatch that the group estimates that Netflix would have made “relatively slim profits (if any)” if the company had reported its subscription operations locally in the U.K., due to the scale of its marketing, content delivery, and other costs.
“It’s worth bearing in mind in the context of the wider discussions around tax liabilities of U.S. tech giants in European markets,” Sanei said. “For the period, Netflix was not in the same profitability league as Alphabet /zigman2/quotes/202490156/composite GOOGL -7.68% or Facebook .”