Fortune has a story describing Uber's tax avoidance architecture, which sounds as carefully planned and executed as their back end IT infrastructure. The San Francisco-based Uber operates in over sixty companies, booking rides for drivers, while taking 20-25 percent commission in return. After deducting the cost of providing the service, this could leave Uber with hefty tax bills (35 percent corporate tax rate in the USA; somewhat lower rates are typical of European countries), but here's where the "innovation" kicks in.
Following the example from the Fortune piece, let's say a Uber ride in Rome grosses $100; the transaction is processed not by Uber Technologies in the USA, but by Uber B.V., a Netherlands-based subsidiary with 48 employees. This subsidiary eventually sends $80 back to the driver, who is responsible for local income taxes; there are no payroll taxes, since the driver is an independent contractor. That sounds like a good deal for the Netherlands, who have a corporate tax rate of 25 percent. Unfortunately for the Dutch, not so much - after deducting operational costs of transaction processing, Uber B.V. is contractually required to send all but 1 percent of the net margin to Uber C.V., yet another Uber Dutch subsidiary, but with a headquarters in Bermuda (it must be a small HQ because there are no employees). Under Dutch law, the royalty payment isn't taxable. And Bermuda doesn't have a corporate income tax.
But Uber C.V. (the one with the Bermuda HQ) does remit 1.45 percent of its net revenue back to its corporate parent in the USA, so that amount is taxable. If the transaction costs on the $100 Rome gig came out to $10, then the USA-based Uber parent company would receive 14.5 cents on the $10 net margin ($20 - $10), which (finally) would be taxed at the US corporate rate.
If you're looking for the picture worth 1000 words, here it is. I couldn't make heads or tails of it.
Asked for a comment, Uber told the reporters that they're just doing what other multinational firms (particularly tech firms) do in terms of tax planning. Nothing to see here; move along.
(Score: 5, Insightful) by BsAtHome on Sunday November 22 2015, @01:20PM
There is a saying that "taxes are for the little man". That is quite appropriate in all of these corporations and the wealthy in the world.
If you steal 1 dollar, you get a hefty fine.
If you steal 1000 dollars, you get a lifetime sentence.
If you steal 1000000 dollars, you assure you get out of the jurisdiction.
If you steal 1000000000 dollars, you are hailed as a successful businessman.
some things never change...
(Score: 3, Informative) by davester666 on Sunday November 22 2015, @07:24PM
I believe the name for this method is "The Double Dutch". I don't think there is a single multinational corporation that doesn't do it.
(Score: 2) by jdavidb on Monday November 23 2015, @02:15AM
ⓋⒶ☮✝🕊 Secession is the right of all sentient beings
(Score: 2, Informative) by Snotnose on Sunday November 22 2015, @01:40PM
IMHO Uber is doing the right thing. The problem is our overly complex tax system that allows this crap to happen. Fix the tax law and the problem solves itself.
I know I know, won't happen. Too many politicians get too much $$$ for slipping 'just this one' tax break into unrelated legislation.
Relationship status: Available for curbside pickup.
(Score: 4, Insightful) by darkfeline on Sunday November 22 2015, @02:19PM
The problem isn't our tax system, although our tax system has problems. The problem is the interplay between each country, their respective tax laws, their political motives, their industries, their lobbying, etc., and coupled with the corporate drive to seek the absolute minimum intersection between every country's tax laws.
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(Score: 3, Interesting) by JoeMerchant on Sunday November 22 2015, @03:04PM
Exactly this ^ As long as we have hundreds of sovereign nations and the desire to foster international trade (recent history points to international trade as being a leading suppressor of wars, so - I'd put it in the "good" column), then these tax dodges are going to be available for entities (people, corporations) that operate at a broad multi-national level. There's a certain minimum cost of entry to this "club," but once you've crossed that threshold "buy in price," the benefits are tremendous.
Large economic powers like the US, EU, China, Japan, etc. might attempt to brick-wall their tax borders, at the risk of alienating their trading partners - and the internal political processes are strongly influenced by the large multinational entities, so why would they? vis. https://ustr.gov/tpp/ [ustr.gov]
So often on the news I have seen initiatives to "incentivize consumer spending" to boost the economy out of a slump. This seems to work - while putting consumers further in debt. What the consumers need to find is a way to "incentivize large corporate spending" to achieve the same economic boost while strengthening the consumers' future economic position instead of weakening it. Call it taxes, fines, or incentive based spending.
Traditional conservative employers often joke that "continued employment is the worker's incentive to worker longer, harder, and for less pay." Perhaps "continued ability to operate" might be an incentive for large corporations to put more of their profits back into the economy, instead of holding tens of billions in offshore bank accounts.
Україна досі не є частиною Росії Слава Україні🌻 https://news.stanford.edu/2023/02/17/will-russia-ukraine-war-end
(Score: 2) by M. Baranczak on Sunday November 22 2015, @03:49PM
(Score: 2) by JoeMerchant on Sunday November 22 2015, @04:06PM
First, eliminate national sovereignty, then the global tax system can take care of the problem.
Україна досі не є частиною Росії Слава Україні🌻 https://news.stanford.edu/2023/02/17/will-russia-ukraine-war-end
(Score: 5, Interesting) by BK on Sunday November 22 2015, @06:05PM
1) Eliminate assignment of transactions across borders. Transactions occur at the computer that sends the information to the processor.
2) Treat royalties between subsidiaries as transferred "excess" profits -- taxable in every intermediate jurisdiction.
There! Fixed it!
...but you HAVE heard of me.
(Score: 2) by fido_dogstoyevsky on Sunday November 22 2015, @09:53PM
So which tax breaks would you eliminate to fix this particular problem?
How about "after deducting operational costs of transaction processing, Uber B.V. is contractually required to send all but 1 percent of the net margin to Uber C.V., yet another Uber Dutch subsidiary [registered in a tax haven]"? To start with.
It's NOT a conspiracy... it's a plot.
(Score: 0) by Anonymous Coward on Monday November 23 2015, @12:35AM
From the summary:
Sounds like something that could be easily fixed.
(Score: 3, Insightful) by fido_dogstoyevsky on Sunday November 22 2015, @09:50PM
IMHO Uber is doing the right thing.
Being unethical (getting out of paying their share) while staying within the letter of the (badly written) law is a bit too much like "just following orders".
It's NOT a conspiracy... it's a plot.
(Score: 2) by jdavidb on Monday November 23 2015, @02:16AM
I agree Uber is doing the right thing, but I don't think this is crap at all. Let's get more and more loopholes that allow this to happen until we all get to keep all of our money.
Let us hope that the tax credit will return in full force. And then we can revive the lost tactic, not of "closing the loopholes," but of ever-widening them, opening them so widely for all indeed, that everyone will be able to drive a Mack truck through them, until that wondrous day when the entire federal revenue system will be one gigantic loophole. [lewrockwell.com]
ⓋⒶ☮✝🕊 Secession is the right of all sentient beings
(Score: 1, Funny) by Anonymous Coward on Sunday November 22 2015, @01:48PM
Ironically, the Fortune article would only show up for me when I disabled Javascript. Usually it's the other way 'round!
(Score: 2) by Runaway1956 on Sunday November 22 2015, @02:21PM
The law makers are taking kickbacks, to keep this whole thing going. The people you elected to represent you are representing those corporations, instead. Each nation involved could easily pass a law that all that money stays IN COUNTRY until it is processed, assessed, and taxed at whatever the going rate is.
Abortion is the number one killed of children in the United States.
(Score: 2) by inertnet on Sunday November 22 2015, @02:26PM
They just discontinued their Uberpop service in the Netherlands, I wonder if they'll have to change their tax construction now:
http://www.dutchnews.nl/news/archives/2015/11/uber-drops-uberpop-taxi-service-in-the-netherlands [dutchnews.nl]
(Score: 2) by mth on Sunday November 22 2015, @03:52PM
They only stopped their "we're not a taxi company" excuse since regulators weren't buying it and were putting increasing amounts of pressure on them to comply. Uber still offers services with drivers who do have the required paperwork.
Besides, there are plenty of companies who have a paper representation here in the Netherlands but no employees. I think it's ridiculous that a company can decide to pay itself an arbitrary royalty that has no connection to any actual services delivered. But our politicians don't seem to be in any kind of hurry to fix things, unfortunately.
(Score: 2) by inertnet on Sunday November 22 2015, @04:31PM
Yes, the Netherlands is well known as a tax haven, but not for its citizens. The recently exposed Starbucks tax deal is a good example.
(Score: 0) by Anonymous Coward on Sunday November 22 2015, @04:36PM
The picture doesn't show what happens to the rest of the money (and I'm too lazy to read TFA). If it ends up in a bank that uses it to buy mortgages or whatever, that's not necessarily a bad thing. Although so much cash sloshing around does seem to pose its own risks, as we noticed in 2007.
(Score: 2) by BK on Sunday November 22 2015, @08:37PM
The rest of the money ultimately winds up in a bank in Bermuda. Maybe the bank uses it for something. Probably it winds up in some kind of "investment product" to generate more untaxed income.
The really annoying bit is that Uber can use the value of the Bermuda account as collateral on a loan in the US. In effect, they can us the after-tax benefit of the cash without paying the taxes on it.
...but you HAVE heard of me.