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Why PayPal Is Paying $3.5 Million Extra in UK Taxes

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Tax bill jumps after HMRC review

PayPal (PYPL), which is expected to release its third-quarter results on October 18, has agreed to pay an extra $3.5 million in taxes in the United Kingdom for the 2017 tax year. The need for the company to pay more in UK taxes follows a review of its tax position by the United Kingdom’s tax agency, HMRC (Her Majesty’s Revenue and Customs).

PayPal operates in more than 200 countries, where it’s mostly engaged in processing payments for merchants and consumers. It also lends money to merchants and consumers and charges interest on such loans. But PayPal’s UK subsidiary makes money from serving other PayPal subsidiaries rather than from services rendered to merchants and consumers in the country.

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PayPal, Twitter, and Facebook see their UK taxes rise

PayPal’s UK subsidiary generated a pretax profit of $10.2 million on revenue of $42.2 million in 2017. Its revenue jumped 8.0% from the previous year. Due to the review of its tax position, PayPal’s filings show that its UK tax bill shot up to $5.4 million in 2017 from ~$208,170 in 2016.

Twitter’s (TWTR) UK subsidiary’s tax bill also soared to ~$3.1 million in 2017 from less than $1.1 million in 2016. Facebook’s (FB) UK corporate tax bill tripled to ~$20.7 million in 2017 from $6.7 million in 2016.

PayPal’s international revenue rose 18%

PayPal has said that the review of its UK tax practice is now complete and that it’s no longer subject to any active tax inquiries in the country. Its UK business contributes to its international segment, where revenue increased 18% YoY (year-over-year) to $1.7 billion in the second quarter. Amazon (AMZN) and Alphabet (GOOGL) grew their international revenues 27% and 30% YoY, respectively, in the second quarter.

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