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An Anonymous Coward writes:

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.

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