For New York drivers, Uber took its commission based on gross fares including state taxes, rather than net fares after deduction of taxes. The New York Times estimated that this overcharged New York drivers by more than $200 million — and increased Uber’s revenue by the same amount.
A subsequent New York Times analysis compared Uber’s tax and billing practices across jurisdictions, examining receipts to assess irregularities and comparing changing contract language to understand Uber’s shifting approach.
Uber classified drivers as contractors, not employees. As a result, the company avoided withholding income tax from driver earnings, and avoided paying the employer’s share of payroll taxes.
The correctness of this classification is disputed via ongoing litigation in numerous jurisdictions. On July 12, 2017, Uber drivers in North Carolina won preliminary class-action status in a case brought under the Fair Labor Standards Act.
When the city of San Francisco demanded that Uber provide it with drivers’ names and contact information so the city could demand that drivers obtain business licenses and pay applicable fees, Uber claimed that disclosures would violate drivers’ right to privacy. In a June 2017 ruling, Superior Court Judge Richard Ulmer disagreed, ruling that the city Treasurer and Tax Collector had legal authority to demand the information. He said compliance would not be unduly burdensome, and that any drivers who wished to challenge license requirements could do so on their own.
Lyft provided the data to San Fransisco without litigation.
Through a set of affiliated companies and royalty agreements among them, Uber avoided certain corporate taxes for rides in most countries. Fortune explained the practice:
Whenever a passenger takes an Uber ride anywhere in the world outside the U.S., whether it’s in Beirut or Bangalore, the payment is sent to Uber B.V. The company typically sends 80% of that ride payment back to the driver via yet another Dutch subsidiary and keeps the remaining 20% as revenue.
Here’s where things get interesting. Uber International C.V. and Uber B.V. have an “intangible property license agreement” in which Uber B.V. must pay a royalty fee to Uber International C.V. for the use of Uber’s intellectual property—basically, the app that matches driver with rider. Under the terms of the agreement, Uber B.V. is to be left with an operating margin of 1%—effectively 1% of revenue—after subtracting the costs of operation. The rest of the profits get sent to Uber International C.V. as a royalty. And under Dutch law, that royalty payment isn’t taxable.
Let’s say that a passenger hails an Uber and takes a $100 ride across Rome (we’ll assume “surge pricing” is in effect). The payment goes to Uber B.V., which sends $80 back to the driver. The driver is responsible for paying his own taxes on that income. Of the $20 that’s left over, let’s say that Uber subtracts half to cover costs, leaving $10. But that’s not its taxable income. Uber B.V. will ultimately book only 1% of that initial $20 in revenue, or 20¢, as income. (The top corporate tax rate in the Netherlands is 25%, so the government will get 5¢ and the company keeps 15¢.) Uber B.V. then sends the balance of $9.80 to Uber International C.V. for the royalty. That’s one scenario. If Uber B.V. subtracts only $5 for costs, then the royalty payment to C.V. would be $14.80. The point is this: No matter what the amount of the royalty income that Uber International C.V. receives, virtually none of it will be taxed. It is what’s known as “ocean income,” because it sits in a gray area between national tax authorities.
Uber denied that these practices were improper. A spokesperson wrote: “Our corporate tax structure is probably the least innovative thing about Uber. It’s the standard approach adopted by most multinational companies.”
Uber treats its 40,000 UK drivers as separate businesses, each too small to register for VAT. As a result, Uber does not pay the UK’s 20% VAT on booking fees, saving Uber approximately £1,000 per driver per year.
In contrast, the source notes that Uber’s main UK competitors, Gett and mytaxi, both said they do pay VAT on booking fees.
Uber’s UK business, Uber London Limited, paid £411,000 of tax on a £1.8 million profit, according to the company’s 2015 report and financial statements. Critics found this unduly low, arguing that after charging UK drivers some £520 million of commissions, Uber should have paid more UK business tax.