Uber is avoiding value-added tax (VAT) in the United Kingdom and may be directly hurting its competitors in the country, according to a Wednesday report by Reuters. The ride-hailing giant is said to be deliberately treating its 40,000 British drivers as standalone businesses and is hence able to avoid paying any VAT due to the fact that individual drivers don’t generate enough revenue to be forced to register for VAT, meaning Uber is able to charge VAT-free rates to riders and is putting its rivals at a direct disadvantage. Both mytaxi and Gett — two of the company’s largest competitors in the UK — are paying VAT to Her Majesty’s Treasury, but neither has yet issued a comment on the matter in any official capacity.
In a statement provided on Wednesday, the San Francisco, California-based company said that it adheres to all rules and regulations in every country where it operates, adding that its UK operations aren’t breaking any laws that regulate “international service provider with customers in the UK.” It’s currently unclear why mytaxi and Gett aren’t using the same tax loophole since they can both be categorized as such, but in Uber’s instance, the company is saving around £40 million ($51.85) million per year, as it would otherwise have to pay approximately £1,000 ($1296) per each one of its British drivers on an annual basis. The loophole allowing this tax avoidance strategy reportedly exists in some other EU jurisdictions but Uber is said to be primarily utilizing it in the UK which accounts for around one-third of its revenue on the Old Continent, meaning aggressive tax avoidance tactics could yield significantly larger savings for the company in the UK compared to other European countries.
Margaret Hodge of the Labour Party described the practice as being “unfair on Uber’s competitors,” though competent authorities only provided vague statements on the matter, indicating that the firm’s approach to avoiding UK VAT is legal. A number of U.S. tech giants including Alphabet’s Google and Facebook are also said to be using the same tactic, albeit on a significantly smaller scale, industry watchers said. The ride-hailing company is currently awaiting a ruling from the Court of Justice of the European Union (CJEU) that will determine whether the firm will be classified as a taxi service provider and be forced to obtained associated licenses, potentially hurting its European operations.