Uber Technologies Inc., responding to a European crackdown onoffshore tax havens, created a US$6.1 billion Dutch tax deductionthat will help the company reduce a chunk of its global tax billfor years to come.

San Francisco-based Uber generated the outsized deduction beforeits initial public offering (IPO) in May because it moved some ofits offshore subsidiaries to different countries as a result of newEuropean Union rules governing multinational companies.

The $6.1 billion deduction came through an increase in the valueof intellectual property that Uber transferred between its offshoresubsidiaries, according to the company’s first quarterly filing.When an intangible asset increases in value, so do the taxdeductions that come with its use over time.

“It’s safe to say that Uber will not be paying any taxes for theforeseeable future,” said Robert Willens, an independent tax andaccounting expert in New York.

That $6.1 billion will be a cushion should the company ever turna profit, allowing the ride-hailing company, which has offices andsubsidiaries in the Netherlands, to winnow down the Dutch portionof its future global tax bill.

The windfall is applicable only to the company’s taxbill in the Netherlands, a tax-reducing hub favored bymultinational corporations. But it will certainly lower thecompany’s overall global tax bill if it becomes profitable.Meanwhile, the company can use its U.S. losses to lower its U.S.tax bill.

Uber isn’t the only U.S. company that has moved operating unitsaround the world in response to Organization for EconomicCooperation and Development (OECD) rules. The OECD requiresmultinational companies to justify the business purpose of theiroffshore operations. Low-tax countries like Singapore, Ireland, andthe Netherlands are becoming more desirable than no-tax Caribbeanhavens such as Bermuda.

Uber’s windfall was created last March when it pulledintellectual property (IP) out of a paper entity in Bermuda with noemployees and put it into a Dutch entity that’s ultimatelycontrolled by a holding company in Singapore. The Dutch entity hasdozens of other Uber entities under it, according to NetherlandsChamber of Commerce documents.

But the size of the tax savings took experts by surprise.

Willens called the $6.1 billion deduction “unusual” relative toUber’s roughly $73 billion market value. Another independent taxand accounting expert, Frank Vari in Boston, said he was“surprised” that the deduction was “that large.” The benefitreflected the lofty value that Uber had given its IP when it movedits subsidiaries to new locations.

An Uber spokesman said the shuffle was made to “meet thedemands” of “the new global tax environment.” He referred to theOECD rules that aim to prevent technology and pharmaceuticalcompanies from using paper companies to whisk profits earned inhigh-tax countries to low-tax and no-tax ones.

The spokesman, who asked not to be named, citing company policy,added that the shuffle also marked an end to Uber’s use of adifferent tax strategy, known as “Double Dutch.” That structure,which involves Dutch entities with no employees that funnel profitsto havens, has been popular with multinationals in recent years andis now in the cross-hairs of European regulators.

Technology companies have always worked hard to keep their taxbills low. Amazon.com Inc.’s relatively small annual profits haveallowed the e-commerce giant to shrink its tax payments whilere-investing in new projects. That strategy has been a recipe forhigh growth and low tax payments.

In the U.S., Uber has tallied operating losses of more than $10billion over the last three years. Those losses will allow it tocut down its future U.S. tax bills. As of the end of last year, itreported U.S. net operating losses for future use of $5.1 billionfor federal purposes and $4.4 billion for taxes in the states inwhich it operates.

In its second-quarter report filed Thursday, Uber posted a $5.2billion net loss amid sales that fell short of estimates and costsfor stock-based compensation during its public offering. Thoselosses, which reduce its taxable income, would allow it to savearound $1 billion in federal tax and around $220 million in statetaxes, or a total of around $1.2 billion, Willens said. They’re inaddition to the $6.1 billion Dutch buffer.

Before President Donald Trump’s 2017 tax law, companies couldfully carry losses back two years and forward 20 years. Now, theycan’t be carried back and can offset only 80 percent of taxableincome.

The $6.1 billion Dutch benefit will reduce Uber’s final Dutchtax bills by that precise amount, and it has no expiration date.“It’s even better” than the U.S. losses, Willens said.

Uber referenced the shuffle in its filing, saying that itundertook “a series of transactions resulting in changes to itsinternational legal structure, including a redomiciliation of asubsidiary to the Netherlands and a transfer of certainintellectual property rights among wholly owned subsidiaries.”

Uber’s moves signal how the Republican tax law, which cut the corporaterate to 21 percent, from 35 percent, failed to encourage companiesto bring IP and profits back to the United States because they canstill pay lower taxes by keeping certain entities overseas.

Tax rates in the Netherlands and Singapore fall well below thenew 21 percent U.S. rate. The Netherlands has a top corporate rateof 25 percent, but income from intangible property, like royaltiesand licensing fees, can be taxed at 7 percent. Singapore’scorporate rate is 17 percent, though some companies can winnow thatdown through incentives and other measures. Uber’sNetherlands-based IP is tied to royalties, licensing, andtrademarks that underpin its business in 63 countries as of lastyear’s end.

For now, Uber will have to wait to use its new benefit. Becauseof thorny accounting rules that require U.S. companies to beconservative in their profit forecasts, Uber doesn’t think it willgenerate enough profits in the near future to actually use the $6.1billion benefit, according to the spokesman, who cited thecompany’s quarterly filing.

But once Uber turns a profit, the deduction will kick intoaction, Willens said. “I’m sure Uber feels that it will eventuallybecome profitable and be in a position to ‘realize’ itscushion.”

Vari called Uber’s shakeup of its legal form “sophisticated.These structures take a lot of time and money to construct, and areoften considered proprietary.”

The Uber spokesman said the company “remains committed toopenness and transparency with tax authorities around the world,staying faithful to both the letter and intent of the laws in themany jurisdictions where we operate.”

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