Tax me if you can: VMware UK tosses shrunken offering to HMRC

Just 11.52% on pretax profit. Virtualization juggernaut doing well in the distie stakes

Trendy social media firms and ad slingers often come under attack for hiring beanies to minimise their tax contribution, something they see as sensible commercial practice. VMware UK may fall into that bracket too.

Virtzilla's Brit ops paid an actual tax rate equivalent to 11.52 per cent or £1.997m on the £17.331m pre-tax profit it reported in the year-ended 2 February 2018, according to a online filing (PDF) at Companies House, er, hosted by AWS.

Turnover for the 13-month period was £297.5m, compared to £128.44m in the prior 12-month period to 31 December 2016, but this was not because VMware sold a load more software licences.

"The increased turnover is as a result of the company commencing as a limited risk distributor from 15 May 2017. Management are satisfied with the results for the year which reflect strong presence of VMware in the UK."

As well as acting as a limited risk distie for its shareholder, VMware International Ltd (VIL), the UK operation also provides EMEA management services to the VMware Group "along with conducting research and development services for the benefit of VMware Bermuda".

Before May last year, VMware's local biz had also provided sales and marketing "support" to VIL in the UK – VIL is itself based in Ireland for, er, tax purposes – but "ceased upon transition" to the new structure.

Despite this, headcount at VMware UK leapt to 746 from 515 in fiscal '16, and 601 of the staff were based in sales and marketing support up from 386. The highest paid director, excluding options, was handed £588,000.

Revenue for the year was broken down as such: licence and service revenue was £172.02m; intracompany marketing services came in at £87.7m; and £37.83m was intracompany R&D services.

The new financial year dates align it to ultimate parent Dell Technologies.

VMware said tax assessed for the year was "lower" than the standard rate of corporation tax, 19.23 per cent versus 20 per cent, but here is how it reduced that actual amount paid.

VMware UK reported a pre-tax profit of £17.331m, and so was due to cough £3.333m. But due to a share option decrease of £1.39m, £136k of expenses not deductible for tax purposes, tax rate charges of £19k and £101,000 for the transfer of assets, VMware UK actually handed £1.977m to the tax collector. At least the tax office didn't pay VMware to operate here.

The US administration doesn't seem to like the noise coming from British Chancellor Philip Hammond about a digital tax for the established tech giants: it would take 2 per cent of UK revenue from firms that turn over more that £500m in local sales. So that's VMware out then.

No doubt others who generate more than half a billion in sales locally will find cunning loopholes to (legally) avoid their fair share.

The Reg has asked VMware for comment. ®

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