On October 2nd, Prague’s taxi drivers, with their brilliant sense of PR, decided once again to protest about Uber by blockading the airport. What great memories all the tourists will have of their weekend in Prague. But this time, the taxi drivers seemed to have some international allies . A few days earlier, in a move that really attracted global interest, Uber lost its licence to operate in London. It reminded people that Uber had problems in other parts of the world too.
The arguments roared into life in both London and Prague. In both cities many people felt Uber were giving them a cheaper alternative to “expensive” taxi drivers. Young people in particular argued that taxis are ‘the past”; Uber with its app and its new way of working with drivers was part of the cool new world, together with AirBnB. Uber of course have encouraged that thinking. But in fact, the arguments in the two cities are not the same, and I would like to describe the difference to you.
But more importantly, thanks to an article in a really obscure London magazine devoted to London transport issues, I will show you that the real problem with Uber is one that the mainstream media has not picked up. In fact, I don’t think even the Czech Minister of Transport, Dan Tok, has picked it up yet. I hope he may read this…
Excuse me, I am not a Luddite…
I may be near the age of retirement, but I live too much of my life on the internet; I was probably one of the first 1% in the Czech republic to use internet banking. I buy all my travel, most of my clothes, nearly everything except fresh food on the web too. And I have used Uber. My experience has not been good, but I won’t bore you with all the problems (just one really good one.)… Suffice to say the problem is not the app. There is nothing so special about it. Modry Andel quite quickly developed something similar, but with two differences. You don’t have to give your debit card details to Modry Andel; and if something goes wrong, you can call Modry Andel. If something goes wrong with Uber, whom do you call? For example one Saturday afternoon last summer when I was sitting in my garden in Prague, my phone pinged a message. “Your Uber will arrive in 3 minutes”. But I had not called one, I was not going anywhere. At first I thought I would just ignore it, it must be a technical mistake, but out of curiosity I went to the Uber app. To my amazement, I saw that “I” had just been picked up. In Bristol!! WTF?
The only thing I could think to do would be to send an email to Uber in the UK (where my Uber account was registered). Meanwhile, I watched on the app as the Uber took “me” across Bristol, and dropped me off, incurring a bill of around £15. After a couple of hours, Uber responded. I still have the mails. Don’t worry, they said, your card details have not been compromised, and of course we will return you the money (they did, in fact, it never left my account). But when I asked how such a thing could happen, they said that my password had obviously been stolen. They said this often happens because people use the same password for many websites which are less safe than Uber. Two problems with that arrogant answer; 1. I don’t use the same password, and 2. I never had any problems with other websites before or after this event. I asked them if they were going to inform the police. No, they said, because my card details were not stolen, but I could inform the police and Uber would support me.
That’s when I stopped using Uber.
London needs cheap taxis
The famous black cabs have always been expensive,, and they can choose not to take you outside the inner city zone. However their vehicles are also extremely expensive. They have a very short turning circle, and that’s because originally they needed to be able to navigate the very tight circular road outside London’s Savoy Hotel. Many black cab drivers have told me that TfL (the regulatory authority for London transport) refuse to change the specification of the vehicle for modern times, there is only one authorised supplier of the vehicles, and so the price is artificially high. In addition they have to pass the test, known as The Knowledge, whereby they learn the way around every tiny street in inner London. Believe me, it is tough, and can take several years.
For customers the biggest problems come late at night. Most people live in the suburbs. My sister’s house is about 21kms from Soho, and the last train from central London leaves around 00.20. But even within the suburbs of London it is difficult. Last Saturday I went to dinner in Greenwich. The distance back to my sister’s house is less than from where I live in Prague 6 to Letenske namesti. But there is no metro for that journey, no train. It is technically possible with a bus, but only with a lot of walking, a journey of 45 minutes for 6kms; and a late night bus in London has some “interesting” fellow passengers. To get back from Letenske namesti, it’s 3 stops on the metro, or if I am too late, there’s the night tram, where the most boisterous passengers are often young females.
That might help to explain why a petition demanding the ban on Uber be lifted reached 800,000 signatures within just five days.
In Prague, it’s a different story.
Londoners complain that taxis are expensive, but Praguers complain that taxi drivers often cheat, that the drivers are rude, and the vehicles dirty. Really, I think that nowadays, this is true of only a small minority. My problem with them is the aggressive way they drive, especially those that regularly work at the airport. The worst are FIX, and nearly as bad are the Taxi Praha mob. if you are a visitor, don’t use them. Unfortunately AAA drivers who work at the airport seem to catch the same disease.
Uber seems to have done well in Prague because it is significantly cheaper. Why pay more, if you can pay less for the same thing?
I would though like to point out one thing. In London terms, Prague taxis are not expensive. If I would use Data Cars to take me back from Central London on a journey of 10kms, it will cost around 680CZK. The same journey in Prague with AAA, who are not the cheapest, will be around 260CZK. And for the benefit of readers in the UK, yes the car will be a Skoda, and quite probably a Skoda Superb.
And, unlike in London, I think the vast majority of Praguers have a quick, safe public transport alternative even late at night. I certainly do, where I live, and I really appreciate it.
Yet Uber is cheaper than most of the taxi companies, and the taxi companies are angry. Minister Tok ( for whom I have a lot of time) framed the argument this way “We cannot ban modern applications and services, only everyone must observe the same rules. This applies to both taxis and Uber. The former have gained a bad reputation by their overpriced services and controversial behaviour, and now they fear competition. The latter violate the law, speaking of shared drives but in fact running a business without any licence or car insurance that are required from taxi drivers,”
He is right, but he has not yet fully understood how it is possible for Uber to offer such low prices. Neither have most people in London, including, it seems, the Financial Times. But when I was reading an article in the FT, and then the comments below it, I discovered London Reconnections. And these guys led me to Uber’s dirty little secret, which I had always suspected but never had proof of.
It’s all about tax….
“Tax? That’s for wimps”
Well Gordon Gekko in “Wall Street” was talking about lunch, not tax, but in recent years we have seen that the new US “tech” giants – Google, Facebook, Amazon, Apple,- have all been accused of avoiding corporation tax and VAT which their competitors have to pay. Well it seems we can add Uber to that list.
In this article, London Reconnections exposes the Uber business model. In London there are actually two Uber companies that the customer interacts with. Uber London holds the licence to operate in London. However as a customer you deal with a completely different company. One that is based in the Netherlands: Uber International, B.V.
When I read that, I realised how Uber really works. It is a business designed to avoid paying corporation tax. In Europe it uses a similar model to that used by Google, Facebook, Apple and Amazon (all you will notice, American, as well as being “digital” and “cool”.) The London Reconnections did not go on to ask the key question; Why The Netherlands?
Well firstly it is one way in which Uber claims that VAT need not be added to their fares in London, whereas they are added to the fares of a typical mini-cab company. This issue is under review by the UK tax authorities. Uber argues that its drivers are self employed. The threshold for compulsory VAT payment in the UK is much higher than in CZ, so they may not need to charge VAT; however Uber ought to be adding VAT to its fees it charges the drivers, and currently is not. However even if it is ruled that it should charge VAT on fees, it can avoid this because it is rendering the charge from the Netherlands. It is a loophole in EU tax law.
However that would be true if Uber is based in any other EU country. The point about the Netherlands is that its tax laws allow international companies to pay little or no corporation tax. I first came across this when I realised that many of the international advertising agencies in the Czech republic were reporting their profits to a Dutch company even though the management reported to European HQs in London or Paris. It is more difficult to describe exactly how the tax dodge in the Netherlands actually works, but this article is the best I have found so far. (Warning: it is long and complex, because the subject is complex.) But that is the situation. Uber will never pay UK corporation tax on most of its earnings from activity in London.
Uber in the Czech Republic isn’t paying tax either.
it did not take me long to work that out. I went to register on Uber’s website and discovered that the contract I would be signing is exactly the same as that which I signed with Uber in the UK. So Czech fares are also sent to Uber International B.V. in the Netherlands. The Uber company registered in the Czech Republic is a different one but is wholly owned by not just one but two Uber companies with BV status in the Netherlands. Why there are two companies in the Netherlands I don’t know, but it will be for tax avoidance purposes, I am sure.
As for VAT, some in the media have already exposed that Uber does not include VAT on its fares , but big local companies such as AAA or Tick Tack do so. if Uber drivers do not charge VAT, that is a big reason why they are cheaper. And that is not fair on the other companies.
Why does this matter and who is going to stop it?
It does not surprise me that all those companies I mentioned who use the Netherlands (or Ireland, Luxembourg or Cyprus) to report their taxable profits are all from the USA. In the country there seems to be a culture that tax is evil. They persuade themselves that it is somehow OK to avoid paying it.
Well in Europe the majority view is that it is not OK. When these companies set up in London, they immediately use the transport system, the rest of the well-developed infrastructure, the education of the people, the protection of the police and justice system. Whom do they think pays for all that? The answer is, all those who pay their taxes, including VAT and corporation tax. That includes the competitors of their business. The same is true in the Czech Republic. Can anyone give me a good reason why this is OK?
Unfortunately in the UK the politicians and the Finance authorities (HMRC) have been slow to tackle the issue. They argue that it is complex; however I believe that the Finance Office is under-resourced with the human talent which can deal with the arguments from the expensive advisers all these companies have. It is also true that it will be difficult for one country alone to tackle these big corporations. The European Commission however is big enough, and is working on it. We should strongly support this.
In the Czech Republic there is of course another difficulty. Several big and powerful “Czech” companies are using similar schemes by registering in tax haven countries. PPF is one to use the Netherlands. And if the information in this article remains true, Seznam is now a Cypriot company. No wonder the Seznam article I linked earlier does not consider Uber’s choice of the Netherlands to collect its revenues from around Europe.
The problem may seem complex but the argument is simple. Governments tell us there is not enough money for the services we all expect to be good: Healthcare, education, transport etc. If we want better, we are told, tax revenue has to go up and everyone has to pay what they owe. In the Czech Republic we have EET and “invoice matching” because of this. But if the biggest companies avoid paying what they should do, the rest of us have to pay more to make up the difference. That is not right, and we should all be very angry about it, and insist our governments do more to tackle the problem.