Uber Under Siege

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

Nicholas Hallam

Nicholas Hallam, Accordance VAT, U.K.

Nicholas Hallam is CEO of Accordance VAT, U.K.

Uber is facing fundamental challenges relating to growing cultural and political resistance to the “gig” economy. The questions of corporate social responsibility around Uber's tax position may now pose an existential threat to it.

Uber is under siege. In normal circumstances, if the CEO of a massive global business were to resign under a thunderous cloud of allegations of personal impropriety, bullying, and fostering a culture of reckless arrogance, it would be considered just about as bad as it gets for the suffering company. But, in Uber's case, the very recent decline and fall of supremely headstrong visionary Travis Kalanick is probably nowhere near the top of the firm's big flashing red threats list.

Fundamental Challenges

The challenges Uber faces are more fundamental, relating as they do to a growing cultural and political resistance to the technology-enabled “gig” economy. Kalanick's personal integrity and sense of responsibility have come under intense scrutiny in the last few months; but it is the question of corporate social responsibility that poses the existential threat to Uber.

Had, for instance, Jeremy Corbyn's momentum taken him just a little further at the general election, Uber would now have as its fastest growing non-U.S. market a country whose Prime Minister had singled the company out as a symbolic perpetrator of the nastier practices of contemporary labor-exploiting capital.

Following an employment tribunal decision against Uber last October, Corbyn, retweeting the remarks of the Trades Union Congress about this being a victory against the “rigged economy,” commented: “An excellent win for Uber drivers today and a victory that will have a positive impact on many workers' lives.” In the House of Commons this March, he elaborated:

I hope that in his statement later today, the Chancellor will address the question of injustice [sic] of many people forced into bogus self-employment by unscrupulous companies. Because many of them force their workers to become self-employed, thus avoiding employers' National Insurance contributions. It is a grossly unfair system where those in self-employment pay some National Insurance, employers do not and benefit from it. That is a gross injustice.

I wrote about the tribunal for Bloomberg BNA earlier this year ( https://www.bna.com/slave-algorithm-vat-n57982085887/). Corbyn is referring to the practice of platform providers (such as Uber and Deliveroo) treating those actually physically delivering services (in this case, drivers) as being self-employed. On the interpretation that justifies the practice, Uber is maintaining that the service it provides is merely to connect drivers and fares: it is not itself a cab company or provider of transportation services. As a result, the company does not need to charge VAT for each ride; only if the self-employed cab driver breaches the VAT threshold will VAT be due from his or her customer, and it will then be a matter between the driver and HM Revenue & Customs (“HMRC”).

A New Issue

While not a completely new issue (there are, for example, notorious tribunal cases about the relative VAT liabilities of lap dancers and strip clubs, and hairdressers and salons), the sheer scale of internet platform service provision creates a greater threat to the tax take. Speaking earlier this month about the Uber VAT issue, MP Margaret Hodge, the influential Chair of the Public Accounts Committee, explicitly attacked the firm:

It is yet another example of how large companies find loopholes and use the law for a purpose for which it was never intended… there is a failure to pay tax that should be due. That reduces the money available for public services and is unfair on Uber's competitors.

A Labour government taxing and spending “for the many and not the few” would most likely be bad news for Uber: but Uber isn't having to wait for that eventuality to suffer more pain on the VAT front. The employment tribunal decided against Uber: it considered the drivers to be the company's employees: as far as the tribunal was concerned, Uber is providing transportation services. If upheld at the appeal in September, the decision could, as we discussed in the previous piece, have major implications for Uber's charges and margins. Somebody would have to cover the additional 20 percent VAT due for an Uber ride.

Tax counsel and activist Jolyon Maugham is not content to wait until September for justice to be served. Acting under the umbrella of the Good Law Project, Maugham has initiated High Court proceedings against Uber on the basis that the company fails to provide VAT invoices to customers. The Good Law Project wants to “lever open a private conversation between Uber and HMRC in which there is considerable and proper public interest”:

We are suing Uber for a copy of a VAT receipt on a journey our Director, Jo Maugham QC, took to a client's last week. The VAT on the journey is a matter of a couple of pounds. But the consequences for Uber of it being liable for VAT are enormous: it will have to raise its prices by up to 20%—and will have a historical VAT liability of tens if not hundreds of millions of pounds in the UK and across Europe.

The EU Position

And there, finally, is the deepest thrust of the knife: “across Europe.” It isn't just the U.K.’s tax take that Maugham is seeking to defend; it is the ability of European Union Member States to continue to generate revenue from the traditional services now being disrupted by free flowing global corporations. The European social model is imperilled by any major diminution of the tax base, a fear evident in Hodge's charge that Uber's behavior “reduces the money available for public services.”

Perhaps unsurprisingly, it looks as though Europe is about to definitively agree with Maugham's analysis. Last month, The Advocate General of the Court of Justice of the European Union (“CJEU”), Maciej Szpunar, decided that “the Uber electronic platform, whilst innovative, falls within the field of transport. Uber can thus be required to obtain the necessary licences and authorisations under national law.” Though this is not yet a binding ruling, CJEU judges generally confirm the views of the Advocate General. If they do, this opinion (which is not in itself related to taxation) will provide useful ammunition for those arguing that Uber is making supplies of transportation—and hence needs to account for VAT on income received for those services.

Maugham is explicit about his quest for fairness: “it'd be so damn satisfying to see them hounded for tax the way normal people are.” But perhaps obscured by this defense of the many against the few is the question of the deeper benefits—or not—of technological change. Robert Colville, writing about Uber, expresses the traditional view of economists: “innovation always brings disruption—and in the long run, the number of new jobs and industries created has always outweighed those lost’.

It remains to be seen whether the gig economy can truly deliver on that promise—or if it will even be given the chance to do so.

Nicholas Hallam is CEO of Accordance VAT, U.K.He may be contacted at: Nicholas.Hallam@accordancevat.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax