Lawyer Jolyon Maugham took an Uber on Monday in London but it was no normal ride. He was on his way to deliver a letter to the ride hailing service's headquarters that could kick off legal proceedings potentially costing the U.S. start-up millions of dollars.
Maugham's case revolves around how much tax Uber pays in the U.K. and if successful, could have wide-reaching implications across Europe. Britain has something called value added tax (VAT) which is paid when you buy goods or services. The current rate is 20 percent.
Uber pays no VAT in the U.K. because the ride-hailing app does not class its drivers as employees. Instead it says it is connecting riders to drivers.
"Uber says that it is a business to business service. It says that it is supplying the taxi drivers with an introduction service but that proposition suffers from two deficiencies. The first is that it doesn't really accord with what you and I would think of as reality because we think that Uber is a consumer facing brand, it's not a business facing brand. So it doesn't look like reality looks like," Maugham told CNBC by phone on Friday.
"In an employment tribunal case last year, they found that Uber was engaging its drivers as workers and it also went on to say, and this is the necessary logical consequence of the first proposition, that Uber is supplying transportation services and it is making a VAT-able supply."
The lawyer is referring to a landmark U.K. case last year in which judges ruled that Uber drivers are not self-employed and should get all the benefits of full workers' rights such as holiday pay and pensions. Uber has appealed the decision and it is still ongoing. The company also said that its drivers, not the company, pay VAT. If you are self-employed, you can be liable to pay VAT if your turnover for a 12 month period is over £83,000 ($103,552). But it is unlikely an Uber driver would make this in a year.
"Drivers who use the Uber app are subject to the same VAT laws as any other transportation provider in the UK," an Uber spokesperson told CNBC by email.
Maugham said that he hopes this will got to the High Court in London to be heard next month. What's at stake here for Uber is large sums of money as well as implications that could span across other jurisdictions. If Uber loses, it will have to increase fares by 20 percent to accommodate for VAT, and could be liable to pay tax on previous revenues it earned. The company has not released its financials in the U.K. for 2016, but Maugham believes it could be liable to pay £200 million ($249 million) in VAT for last year. If Uber loses any potential case, its VAT payments could be assessed across the entire European Union (EU).
A rise in fares is not something that will please most Uber users given they use the service for the cheaper prices and convenience. The lawyer said he was not worried about any backlash from the public.
"I think there will be a much larger constituency that believes that nobody is above the law and everybody has to pay taxes that parliament demand. Unless these big powerful corporations pay their taxes, society cannot operate. There will be people who will be irritated they have to pay more for their Uber taxi, but think they will be in the minority," Maugham told CNBC.
The affairs of U.S. technology firms in Europe have been in focus over the past few years. Last year, the European Commission, the European Union's executive arm, said Ireland must recover 13 billion euros ($14 billion) in "illegal tax benefits" it granted to Apple. The iPhone maker has appealed the decision. And Google agreed to pay the U.K. £130 million in back taxes last year, in a move that was criticized at the time as a "sweetheart deal". Google at the time said it was going to be paying more tax in the U.K. moving forward.
Maugham said he is going after Uber because the public sees such stories which leads to distrust in the government. He wants to put pressure on the government "to take this behavior more seriously".
Maugham is the founder of the Good Law Project which uses legal cases to "deliver a progressive society". He is crowdfunding the case against Uber.
The lawyer did not rule out going after another big U.S. technology company after Uber.
"If the right opportunity arose to go after them I would do it," Maugham told CNBC, without naming any specific companies.
