>> Uber is using a little known loophole in Britain that could allow it to avoid paying tens of millions of pounds to the UK government. A Reuters investigation finding it affects a tax normally applied to the commission Uber charges its drivers every time they're paid by a rider.
Circumventing the European Union's value added tax, or VAT, when making the drivers pay into a subsidiary in the Netherlands instead of the UK. Reuters Tom Bergin uncovered the story.>> Uber avoids charging that because it uses what's called the reverse charge mechanism. Now this mechanism was brought in, accountants tell us, to help usually large companies trade across borders in the European Union.
These such companies are likely to reclaim any VAT they pay. So, the government said, to make that cross-border trade easier and avoid companies having to reclaim VAT from foreign tax authorities, they could just sell VAT free between each other. Intentionally, it shouldn't have any impact on net revenues because the VAT that's not being charged is VAT that was going to be reclaimed.
Uber is using is to make a sale to a party which was never gonna re-claim the VAT, consequently, what's arising is a deduction in respect of an Uber transaction, that was never really supposed to exist.>> By using this reverse charge mechanism, Uber can avoid paying VAT on those commissions from EU drivers outside the Netherland, such as Britain.
Other cross border tech companies like Facebook and Google benefit from the loophole as well, but likely see little gains because most of their revenue in Europe comes from big business clients who have to pay the tax and in turn, pass the cost down to their own customers. But Uber, with 40,000 drivers in the UK, stands to lose up to 40 million pounds if the loophole were closed.
It could be hard to make up unless they raise fares.>> Either the company is happy to accept lower margins, or the drivers are gonna have to pay Uber a higher commission, or tax directly to the government on that commission. The impact, we calculate from speaking to drivers, could be around 15% of their income.
The drivers tell us they just can't afford to lose that kind of money. They're on minimum wage or below at the moment.>> London's black cab drivers have lobbied the government to force Uber to pay more tax. Cabbies in several countries have accused it of unfair competitive practices.
Uber says it respects tax rules everywhere it operates.