Netflix revenues are reportedly being probed by the UK tax authority

Key Points
  • Netflix’s British division is reportedly being investigated by government tax body HMRC.
  • The streaming giant’s U.K. subsidiary declared a profit of just $1.44 million in 2017.
Andrew Harrer | Bloomberg | Getty Images

Netflix is under investigation by the U.K.'s tax authority, according to a report by a British newspaper.

The Times of London reported Monday that Netflix's British accounts were under scrutiny by government tax body HMRC (Her Majesty's Revenue and Customs).

The most recent accounts for Netflix's British arm showed its London office employed 14 people, the paper said. Netflix reportedly claimed the office only existed to provide support to its main European operation, which is registered in Amsterdam.

According to The Times' calculations, Netflix generates around £863 million ($1.1 billion) from British users every year — but only declared revenues of £23.9 million in 2017, with a profit before tax of around £1.1 million. It was noted, however, that the company received an income tax credit of around £177,000 as an incentive to produce British films and television shows.

A Netflix spokesperson told CNBC via email: "Netflix is contributing to the U.K. economy in many different ways. The provision of our service to U.K. based subscribers results in significant amounts of VAT (value added tax) for the U.K. government: 20 percent of the price of every Netflix U.K. subscription.

"We are also investing hundreds of millions directly in the U.K. entertainment industry, with close to 40 projects underway this year including new seasons of The Crown and Black Mirror and co-productions with British broadcasters. More than 20,000 people are working directly on Netflix original productions in the U.K., with this number set to grow as Netflix continues to invest in creating and licensing U.K. content. HMRC regularly audits the accounts of U.K. companies and we're currently engaged with them on this standard review."

HMRC told CNBC via email that it could not comment on individual cases. However, a spokesperson said: "HMRC has a very strong track record on challenging contrived tax arrangements. We make sure that large businesses, just like everyone else, pay all the taxes due under U.K. law and we don't settle for less. In 2017/18, HMRC secured over £9 billion in additional tax revenue from the largest and most complex businesses."

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HMRC actively investigates around 50 percent of the U.K.'s largest businesses at any one time.

U.S. digital giants like Netflix are looking set to face increasing scrutiny in Europe over their revenue declarations. In October, U.K. Finance Minister Philip Hammond announced a new digital services tax that would come into force from April 2020. The EU is also looking to introduce some form of digital tax, with French Finance Minister Bruno Le Maire saying he wants to see it in effect by the end of this year.

Read the full report on The Times' website here.

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