by Mitch Kokai
Senior Political Analyst, John Locke Foundation
The latest issue of Fortune magazine explains how industry-disrupting Uber is shielding as much of its money as possible from the tax man.
The VCs were desperate to give him more money. It was the spring of 2013, and Uber CEO and co-founder Travis Kalanick was weeks away from negotiating a new round of venture capital financing that would multiply the valuation of his car-hailing startup by a factor of 10—from a mere $330 million to $3.5 billion. The line plotting Uber’s growth was turning vertical, and the company needed capital to match. But first Kalanick needed to do a little planning. Tax planning, that is.
In May, Uber formed a new business entity in the Netherlands called Uber International C.V. Over the next few weeks Kalanick’s San Francisco startup executed a flurry of transactions that shifted ownership of several foreign subsidiaries to Uber International C.V. and formed an agreement with the Dutch business to split the profits from Uber’s intellectual property. By mid-June, Uber was ready to continue with its dizzying rise, but with one critical difference: From that point on, nearly all its ride-share income outside the U.S. would be effectively shielded from U.S. taxes. …
… Uber is nothing if not heavily scrutinized. Yet despite the heavy focus on its operations, Uber’s corporate structure has not until now received a great deal of attention. It is still privately held, after all. But a careful examination of available records reveals a surprisingly complicated web of business entities for such a young company. Uber Technologies Inc., as the company is officially called, is a Delaware corporation with more than 60 subsidiaries in the U.S. and another 75 or more around the world. (Like the parent company, some of these offshoots in the U.S. have German names, including Neben, which means “next” in German, and Gegen, which means “against.” Another subsidiary, dissolved earlier this year, was called Schaben, which can mean either “scrape” or “cockroaches.”)
Outside the U.S., the company’s network of subsidiaries has been carefully pieced together to create a state-of-the-art structure for minimizing taxes. The strategies that it employs are legal and similar to those of bigger tech names such as Apple, Google, and Facebook, not to mention multi-national companies such as Starbucks and GE.