Things Get Worse for Uber: Ride-Sharing Giant’s Taxes Under Scrutiny
June 4, 2019
Matthew Gardner
Senior Fellow
June 4, 2019
Since Uber’s much-hyped initial public offering last month, the news has been relentlessly bad for the scandal-plagued ride-sharing company. The company’s share price has fallen by 8 percent from its initial $45, meaning that billions of dollars of the company’s apparent value have vanished. This week the news got a little worse: Uber is under investigation by the Internal Revenue Service for its 2012 and 2013 tax returns.
The company filed its first quarterly financial report as a public company with the Securities and Exchange Commission (SEC) this week. This document includes disclosures of an IRS review. The report provides only scant details on the company’s income taxes, but it does disclose that the company’s unrecognized tax benefits (UTB’s) increased by $1.3 billion in the first quarter of 2019.
UTB’s are tax breaks claimed by a company that, in its view, are more likely than not to be denied by tax authorities. Federal regulators sensibly created this concept to give investors a broad indicator of the aggressiveness of corporate tax avoidance strategies: the bigger your uncertain tax benefits, the more aggressively a company is pushing the limits of the tax law. The SEC requires companies to disclose, in their annual financial reports, the cumulative total of tax benefits it has claimed that are currently uncertain.
The more limited quarterly disclosure tells us only that Uber’s UTB’s increased by $1.3 billion this spring, with no indication of how large its total UTB’s now are. But to put this sum in context, Citigroup reported a total of just $600 million in UTB’s in its most recent annual report, meaning that the quarterly increase in Uber’s uncertain tax benefits is more than twice as large as the cumulative total uncertain tax breaks of one of the world’s biggest (and notoriously tax avoiding) financial institutions.
Of course, if Uber can’t find a path to long-term profitability, the status of its tax breaks may be a moot point. But based on the bullish forecasts made by most financial analysts in recent days, the company’s financial future appears to be bright, which means it will behoove the IRS and other tax authorities to examine the company’s murky tax strategies closely.