In May 2003, a standing committee of the House of Commons assembled to discuss and debate a mammoth Finance Bill.
“I am a tough chairman,” Nicholas Winterton, then a Conservative MP, declared at the first sitting, “and this will be an ordered, constructive and positive committee.” Mobile phones would be switched off, while members were permitted to remove their jackets at their discretion, provided they “are hung tidily on the rear of chairs."
Stuffed into MPs’ red boxes that day was a provision that, over the next two decades, would allow Big Tech to reap billions of pounds in corporate tax deductions in the UK. Tony Blair’s government wanted to allow a company issuing stock to its employees as part of a compensation package to claim a tax relief equivalent to the difference between the market value of the stock and the original price an employee paid for it.
The committee approved the provision, and it was passed by Parliament. This week, Louis Mosley, the CEO of Palantir’s UK and European operations, referenced this debate to defend the controversial US tech firm’s minimal corporate tax payments in the UK as “a standard tax incentive under UK law”.
Mosley’s comments came after a report by the Centre for International Corporate Tax Accountability and Research confirmed openDemocracy’s findings that Palantir has used its share-based compensation scheme for UK employees to minimise its corporate tax obligations by millions of pounds. As we uncovered, the company paid less than £1m in corporation cash taxes in the UK last year – less than it paid in Korea, Japan, France and Germany, despite the UK being its second-largest market after the US.
The public conversation over Palantir’s tax minimisation cuts to the heart of the ongoing debate about capitalism in the UK: after a decade and a half of austerity, who should pay tax – and how much – to mend our unravelling social services and societal fabric? These questions are particularly acute in the case of Palantir, since much of the company’s profits in the UK are derived from government contracts paid for by ordinary taxpayers.
Palantir’s Mosley and former corporate tax lawyer Dan Neidle have argued that, while on paper, it could look like the corporation is avoiding tax, HMRC recoups the money via the income taxes paid by Palantir’s highly remunerated employees.
“We run a generous share scheme for our UK employees. Those shares have risen sharply in value (because of our profitability). So then has the tax bill on those shares – paid at income tax rates, which are HIGHER than corporation tax rates. UK law then offsets some of that against corporation tax, exactly as Parliament intended,” wrote Mosley on LinkedIn, claiming that the company paid $148 million in UK taxes.
“The net result of this sneaky wheeze? More tax paid by Palantir to the Treasury, not less.”
Mosley’s claims cannot be independently verified as the company’s 2025 accounts have not been published on Companies House.
“I don’t see this as tax avoidance, legally or morally,” Neidle, the founder of tax advisory nonprofit Tax Policy Associates, previously told openDemocracy. “[Palantir’s] employees in the UK will have been subject to income tax and employee/employer national insurance. So overall it likely resulted in additional tax being paid.”
But a look at the 2003 tax amendments by the then Labour government, and interviews with tax experts based in other countries, reveal that the UK and the US are outliers in their generous approach to taxing corporations, despite the UK’s headline 25% corporation tax.
The decision to tax employees, while granting corporations deductions, is a clear political and regulatory choice, these experts said, based on the nature of economic activity a given tax regime incentivises — in this case finance capital and Big Tech. Or more bluntly, just because a particular tax provision exists, experts said, it doesn’t mean it is justified.
“Even though this kind of huge deduction may be technically justifiable in a system of taxation, “it’s more the question of, ‘Is this fair?’” said Christoph Spengel, professor for international taxation at the University of Mannheim in Germany – a country that doesn’t allow this type of wide deduction.
“What are the observable consequences if wealth is concentrated in the hands of only a few individuals? Because that’s what this means,” he said.
Spengel said he couldn’t see the justification for such a provision, “because actually there is no cost” to the corporation: no wealth has left the company and it has not given up any of its assets. An employee’s income tax and other personal tax obligations should have no bearing on whether a company gets a deduction, he added.
“Corporations are really important players in the economy, and you want to have a tool to incentivise them to do things you like and stop them from doing things you don’t like,” said Reuven Avi-Yonah, Irwin I. Cohn professor of tax law at the University of Michigan whose work focuses on corporate and international taxation. “And the corporation tax is a very versatile instrument with which to do this.”
“A lot of people are worried about two things: the concentration of wealth in very few hands and AI,” said Kimberly Clausing, Eric M. Zolt Chair in Tax Law and Policy at the UCLA School of Law. Clausing said that while economists and policymakers are considering a wide array of novel solutions to this problem, “the same objectives could be reached much more easily if we had the will to use our corporation tax properly.”
Blair-era break
At the turn of the millennium, companies in the US – particularly in the then-nascent tech sector – were increasingly compensating employees with stock instead of higher salaries. For the firms, the benefits were threefold: they retained cash that could be invested in the business, held onto employees until their shares vested, and saved on tax.
The UK government responded by taking a leaf out of the US’s playbook to amend its own corporation tax rules. When the change was passed in the early 2000s, the Treasury estimated that by 2007-08, it would lose around £95m in forgone taxes in that year, according to a reply to a Parliamentary question in 2003.
Two decades later, as openDemocracy reported, Palantir alone was able to legally use this deduction to create a tax deduction worth around £230m in 2022 – a figure the company has not contested.
“This is the main reason why US mega-corporations don’t pay any tax, because they all issue huge amounts of share-based compensation and deduct it,” Avi-Yonah told openDemocracy. “This has been true forever, it’s not a recent trend. What’s a recent trend is their incredible profitability because of AI.”
Blair-era MPs may have been unable to foresee the staggering shares-based wealth that Big Tech’s IPOs would create over the next two decades, but it is worth noting that not all countries treat corporate taxes the way the US and the UK do.
“The corporation tax deduction available in the UK is among the more generous. Stock-based compensation is supposed to reduce payroll pressure on cash flow, especially for start-ups,” Mike Lewis, the director of Tax Watch, told openDemocracy previously. “The fact that it is also available to established, profit-making companies means that it can effectively wipe out very profitable companies' tax bills for years if share values significantly increase.”
Tax and Regulation
While tax laws are usually presented as a pragmatic set of rules and numbers, they are subjective and the result of policy debates, corporate lobbying and political compulsion.
For instance, corporate income tax in the early 1900s in the US is the outcome of two struggles, writes Marjorie E. Kornhauser, professor of law emerita at Tulane University: “The attempt to enact an income tax and the struggle to regulate corporations.”
As the nature of corporations has changed over the centuries, so have the arguments around how and why they should be taxed.
Corporations today are structured very differently compared to previous eras. Research conducted in the US suggests companies are increasingly substituting wages with share-based payments.
Further, tech firms (including Palantir) increasingly rely on dual-class stock, which allows vast amounts of stock to be issued to employees without their founders worrying about losing control of their companies. Founders are therefore rewarded with unprecedented control of their businesses and greater voting rights than ordinary shareholders. When Google debuted a dual-class structure in its IPO in 2004, only about 1% of US listed companies used such a structure. By 2018, that figure had risen to 30%.
Another structural shift is the growing trend of tech companies earning a growing share of their revenue from public contracts, as governments around the world look to digitise and modernise. Palantir, for instance, earns a majority of its revenue in the US and UK from government contracts paid from public funds.
“Ultimately it’s the taxpayers who fund the money that goes to Palantir,” said Avi-Yonah. The current arrangement is a “one-sided thing where they just grab the money and don’t pay any tax, and don’t give anything back,” except its services, he said.
openDemocracy has reached out to Palantir for comment and will update the piece when they respond.
