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Uncategorized Uber's tax-avoidance strategy costs government millions. How's that for "sharing?"

Uber’s tax-avoidance strategy costs government millions. How’s that for “sharing?”

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Uber's Market Street HQ: If you don't pay taxes, you can afford a spiffy office
Uber’s Market Street HQ: If you don’t pay taxes, you can afford a spiffy office

By Darwin Bond Graham

JULY 10, 2014 — Uber, a leading ride-sharing company, has drawn the ire of regulators and cab drivers in dozens of cities across North America and Europe by exploiting regulatory loopholes that allow it to operate a virtual fleet of cabs largely outside of existing transportation and safety rules.

But Uber’s strategy also extends into the tax code. As part of its rapid expansion into new markets, Uber over the past two years has established a global network of limited partnerships and holding companies in what critics say is a strategy designed to dramatically minimize its taxes.

Uber’s use of mailbox corporations in the Caribbean and European holding companies is similar in design to the tax planning strategies deployed by tech giants like Google and Apple to collect dividends, licensing payments, and profits in low or no-tax havens, say tax policy experts.

Recent estimates have pegged Uber as being worth upwards of $18 billion. Rumors have circulated about Uber’s yearly revenue being somewhere in the ballpark of several hundred million to $1 billion dollars, meaning that the company’s ability to shave down its effective tax rate could cost governments tens, or even hundreds of millions.

There’s no evidence that any of this is illegal, but it’s frustrating for some more traditional taxi services, which pay federal, state, and local taxes.

Uber did not respond to a request for information for this report, but public records maintained by several European authorities show that the San Francisco-headquartered Uber has incorporated more than 30 different foreign subsidiaries since 2012. Many of these subsidiaries are actual operating companies, giving Uber access to markets in Mexico, Singapore, and Russia, for example — but experts say some of the subsidiaries have been established for the purpose of minimizing taxes and sheltering profits.

“Uber appears to have put in place the same sort of tax minimizing structure that a lot of bigger public companies have established,” said Matt Gardner of the Institute for Taxation and Economic Policy, a think tank that studies global tax issues. “It appears that they’re searching for chinks in the regulatory or tax policy armor, and making that a core part of their business strategy.”

Uber’s operations in the United Kingdom are a case in point. Uber’s U.K. subsidiary, called Uber London Limited, was established in April, 2012 to facilitate the company’s expansion into London’s massive transit market. Records held by the Registrar of Companies for England and Wales show that Uber London is owned by a Netherlands private partnership called Uber International Holdings B.V.  This Netherlands holding company is in turn owned by another Netherlands company, Uber International B.V.

The Netherlands is considered by the Organization for Economic Cooperation and Development to be a tax haven because its laws purposefully assist multinational corporations in offshoring profits from other nations. Netherlands holding companies and pass-through companies like those set up by Uber play a major role in the tax avoidance tactics used by large multinationals.

But Uber’s chain of companies doesn’t stop in Europe. Registry files maintained by the Dutch government reveal that Uber International B.V. is owned by a type of Dutch partnership known as a Commanditaire Vennootschap, or a C.V. company, incorporated under the name of Uber International C.V. Uber Inernational C.V. isn’t located in Europe. Rather, it’s incorporated in Bermuda where corporate incomes taxes are zero.

In Bermuda companies can keep secret details about their revenues, assets, liabilities, ownership, and taxation. For these and other reasons, Bermuda has a deserved reputation as a classic example of a tax haven – a small palm-tree ringed island where the local airport bustles with Gulfstream jets and thousands of American and European corporations are “located.” Usually the only actual sign of existence of these companies in Bermuda consists of a brass plaque, a mailbox, or a file drawer in a local law office or trust company. Uber, for example, does not offer its ride sharing services in Hamilton, the beachside Bermuda city where its subsidiary is incorporated.

Uber’s executives in California steer their Bahamas shell company through a Delaware limited liability corporation called Neben, LLC. Neben, is a German word that translates to “beside” or “next to,” while Uber means “above,” or “over.”

London cabbies have organized massive protests against Uber. The cabbies say Uber is aggressively dodging regulations and making transportation around London more dangerous as the company encourages the entry of uninsured, less-regulated drivers and drives down wages. Last month London cabbies went on strike due to what they say is a lack of regulation by officials regarding Uber’s use of smartphones as taxi meters.

But the taxi driver’s union also points to Uber’s tax avoidance as an example of how the company undermines the government’s ability to invest in infrastructure and public safety programs.

“Uber in London, take their bookings through and issue a receipt from Uber BV (Holland) whilst maintaining that they are licensed in London and legal,” said the London Taxi Driver’s Association in an e-mail.

In contrast, the taxi drivers maintain that they pay significant taxes to the city of London and the U.K. According to the taxi drivers union: “Every single company renting out taxis is registered in the UK and pays business and corporation tax and VAT Value Added Tax in the UK.”

“The taxi industry in London comprises of 22,000 vehicles and 24,000 drivers, all of whom are self employed. The drivers are all registered with HM Government Inland Revenue and pay National Insurance and Income Tax based on the hours they work.”

The taxi drivers maintain that they are paying to support the infrastructure and public safety programs required to operate the transit industry.

Like Uber London Limited, Uber’s Irish subsidiary is also wholly owned by its Netherlands holding company, as is Uber Germany. Uber France SAS, which operates Uber’s ride sharing application in Paris and other French cities, appears to be directly owned by Uber Technologies, Inc., the ultimate parent company of Uber that is incorporated in Delaware and managed by Uber’s executives from their Market Street headquarters in San Francisco.

Further details are difficult to come by because Uber is a private corporation that doesn’t file disclosure statements or annual or quarterly reports with the Securities and Exchange Commission.

In February of this year Uber began recruiting a tax director to join its executive team. According to job ads posted by Uber, the tax director would “partner with leadership and external tax advisors to identify and implement global tax planning strategies,” and “assist with transfer pricing policies, completing annual transfer pricing studies, working with legal to maintain and develop intercompany agreements….”

“‘Tax planning,’ ‘tax mitigation,’ and ‘tax avoidance’ are different terms used by tax professionals to describe the desire to pay as little tax as possible,” noted Michiel van Dijk, Francis Weyzig and Richard Murphy, researchers with the Center for Research on Multinational Corporations, a Netherlands-based nonprofit that has studied the use of Dutch corporate law to dodge taxes. “In contrast to ‘tax evasion,’ which refers to illegal non- or under-payment of taxes, tax planning is a legal and often very lucrative business, involving a wide number of highly paid consultants, accountants, and lawyers who try to find the loopholes in the legislation of different countries to minimise the tax burden of companies.”

Transfer pricing, which Uber mentions in the tax director job description, refers to the practice through which corporations transfer valuable intellectual property (such as a smartphone app) to their own subsidiaries in low-tax jurisdictions like the Bahamas or Netherlands. Other subsidiaries of the parent company then pay first subsidiary located in a tax haven to use the intellectual property. Corporations routinely misprice these transactions that happen within their own webs of subsidiaries and holding companies in order to minimize taxes and shelter profits.

Uber is also seeking a senior tax manager, according to another job ad posted earlier this month. The position, which focuses on the company’s U.S. tax obligations, is responsible for “recommend[ing] ways to minimize corporate tax through use of tax laws and regulations.”

Again: All of this is no doubt perfectly legal. But tell that to a cab driver in San Francisco who is struggling not only with reduced business but with his or her obligations to the Internal Revenue Service. Because when big companies find ways to avoid their taxes, the rest of us have to pay more.

 

Tim Redmond
Tim Redmond has been a political and investigative reporter in San Francisco for more than 30 years. He spent much of that time as executive editor of the Bay Guardian. He is the founder of 48hills.

52 COMMENTS

  1. … [Trackback]

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  2. Tell the cabbies to DRIVE FOR UBER. Besides, the consumers are winning. I did everything possible to avoid taking cabs throughout my life but I love Uber. I trust the pricing, the drivers I have used, the cleanliness of their vehicles, why would I want that to end?

  3. Wrong piñata. Uber is not the bad guy for legally exploiting tax loopholes. In fact, if Uber knowingly failed to minimize tax, their investors could sue them for fiduciary lapse.

    Why not attack the Congressional dealmaking that allows the loopholes in the first place? It’s more likely to change something.

  4. Andrew: “Disruptive models like this create jobs, right?”

    No, the money that customers spend on transportation is just moving from taxi companies to Uber. The increase in the number of drivers just means that there are more people making less money.

  5. Sam:”Since it is liberals who adopt “borrow, tax and spend” policies the most, it is clear that it is liberals who put in place most of the tax laws.”

    First, your conclusion does not follow from your premise. Secondly, your premise is bogus.

    Your “true libetarian or conservative” is a classic fallacy known as “No true Scotsman” since this imaginary creature adopts whatever position you invent for him.

    Uber is a sleazy company that cuts corners on licensing and insurance. It exploits its gullible drivers. Now we can add tax avoidance to this pile of sleaze.

  6. “Good, sound reasons?” Well, yeah. It generates campaign contributions and backup jobs for politicians. And that’s pretty much all the reasoning our political process requires these days.

  7. Disruptive models like this create jobs, right? Naturally — quite naturally, capitalistic ally naturally — there is dislocation as markets (people) adjust. The tax and regulatory regime has become the market where the regulated and the regulator exist to perpetuate each other with the inefficiency and ineffectiveness becoming very high costs for everyone outside that ‘market’. Introduce some predictable, timed regulatory modifications and watch the market respond with new jobs, new services, new efficiencies, etc.

  8. Uber is always pushing the laws to its limits. The ‘problem’ with there strategies is that it is legal and widely used by many multinationals. Although it may sound unfair, until the laws are changed there not violating any laws.

  9. LOL Sam…. Like you know what the “American way” is.

    You sound like a whiner Sam… always blaming, never offering policy or legislation… like a true impotent libertarian.

    Hey… btw how was “Reboot”?

    Did you guys all climax at once to rand pauls hair / toupee?

    I bet that was fantastic!

  10. Perfectly legal and historically has been supported by all governments. There are good, sound reasons for it that a biased source like the one you cite could never fathom.

  11. Since it is liberals who adopt “borrow, tax and spend” policies the most, it is clear that it is liberals who put in place most of the tax laws. A true libertarian or conservative would avoid taxes wherever possible.

    And liberal politicians have chosen to adopt rules that allow foreign domicile and other tax breaks. So why are you complaining when corporations follow those laws?

    Why instead aren’t you arguing to change those laws? The laws are the same for everyone and so Uber has no unfair advantage.

    If you don’t like Uber, then don’t use them. That is the American way

  12. What a load of libertarian horsecrap. If Uber paid AS MUCH tax as regular cab companies, they would still have a good app that would give them an edge. If they can’t make it with a good idea, then maybe they have a FLAWED BUSINESS MODEL. But if you have enough hype, you don’t need to answer for your own stupidity in this country. Stop confusing social liberals with economic neo-liberal globalists, which is what YOU are. In one breath you decry regulation and taxes but then “blame” liberals? You’re a joke, dude. And this fatalist “the world is changing” tripe is the lamest copout, the highest expression of intellectual laziness and cowardice that I have to suffer on a regular basis. Wonder why your country is collapsing? Look in the mirror, and check out the footprints of the corporate oligarchy on your throat.

  13. Correct, Jimmy. I find it amazing that it is liberals who put in place these tax rules and then complain when corporations follow those rules in a perfectly legal manner.

    If liberals do not want corporations to employ legal tax strategies then they should change the tax laws rather than whine that some entities are following the law.

    And anyway, if Uber etc. paid more tax it would simply get passed onto customers, and so we’d be paying the extra tax. No thanks, I think I can spend the money more wisely than a bunch of bureaucrats/

  14. “Taxi drivers are defecting from Yellow, Luxor” because they don’t have a shred of dignity. Some because they got fired for having too many accidents.

  15. Your words “Again: All of this is no doubt perfectly legal.” Hundreds of companies employ this tax strategy. Taxi drivers are defecting from Yellow, Luxor, etc. to drive for these new companies because they can make more money (there).

    The world is changing.

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