Amazon's secret UK sales figures revealed by Parliamentary probe Globe-spanning giant etailer Amazon has given the UK government access to its British sales figures for three years, after MPs grilled the firm over its tax payments in Blighty. Amazon said in written evidence to the Public Accounts Committee that it would like to reveal the figures on a "confidential basis" to the MPs. The …
That was true until about 3 years ago when very obvious cost cutting was introduced.
Try doing a web search on the subject or just take my word for it when I order hundreds of items each year. I'm extremely well placed to comment and I can assure you that Amazon's standards have declined. It causes me no end of hassle having to return items (they've changed that process to make it less easy to accomplish too!), Amazon accept all my returns with full apologies so I'm not taking liberties and I would very much like it to STOP!
'This is how EU entities pay for the use of Amazon’s technology and intellectual property, which is primarily developed in the US'
That might be an entertaining diversion if Amazon in the UK/EU/Wherever was an independent entity with a relationship to the parent something like a fanchisee, but that's not the situation is it?
The US corporation licenses its intellectual property to the Luxembourg entities who are allowed (under the terms of the license) to sub-license to other EU entities. Royalties are set by contractual agreement between the parties and that is how 'profits' can be shifted out of the UK tax net
This is an overly simplistic analysis for the real world of international tax law is very complex where one country may view an arrangement entirely differently from another, eg. Australia considers contracting through a company for purely personal expertise (ie. 'IT Contracting') as a complete and utter sham, while the UK allows it to go on but with restriction via IR35. Anyone who thinks IT Contracting through a company is not a form of tax avoidance is deluded. All tax avoidance is perfectly legal, just like what Amazon, et. al. are doing.
As to non-resident IT Contractors out there (Aussies, Kiwis, etc.) why stop at IR35? Why not really shag the UK tax base for all its worth and license your intellectual property/personal services through a series of offshore companies a-la Amazon? As long as it's legal, I won't have an issue with you doing it. But I will be mighty pissed off with my MP for allowing it to happen.
As a part time low income moon lighting Consultant Software Developer it would be cheaper for me to work as a sole trader than as an Ltd Company, but the big issue I have had is a number of well paying Orgs who have required my services insisting on only working with Ltd Companies, leaving me to go via an Umbrella Company or setup my own Ltd Org.
Now I have ventured into a different field of secondary income the taxman get naff all from my services rendered ;)
Say it loud, say it proud.
That's the real reason you can't force the rich to pay higher taxes. And the sooner pols and voters learn this basic law of nature, a law as unyielding as Newton's first approximation of Einstein's equations, the better off we'll all be.
Actually acting 'something like a franchisee' is something that is rather forced on them by the 'arms length' treatment required by the tax regime of a subsidiary (including national subsidiaries).
This is a bilateral arrangement and so where the UK subsidiary uses the US owned IPR (and the key issue is owned as it could be developed elsewhere, including the UK, as an at cost R&D contract) it must account for it by intra company transfer - and vice versa. Where the IPR is owned is also manipulated for tax reasons as a result - expect even more of that once the patent box is in place.
As others have said - a tax policy issue not a HMRC accounting issue.
There used to be a way for people or companies who'd goofed up their tax declarations (either by accident or design) to come clean, negotiate a "fine" with the Revenue and get on with their lives. This was helpful to both sides as it produced a quick result AND it returned unpaid taxes to the exchequer.
It was canned in 1993 and since then the only recourse the Revenue has is a full-blown and antagonistic, investigation of all the person's (or company's) doings. This takes a lot longer and drags in lots of expensive consultants & lawyers on both sides - as well as the glare of publicity and the hypocritical tutting from some members of the public who want BOTH high tax takes (so long as it's not from themselves) and low retail prices. With all this current furore about unpaid taxes, it may be time to conclude that too much transparency doesn't really work in the public interest, and to allow some "behind closed doors"" deals to be done, again. With the obvious proviso that "we'll be watching you".
They are unlikely to have "goofed up" their tax declaration. They are almost sure to be following the rules. The EU market rules allow for these kinds of arrangements. Our useless media is not telling us the opposite story about the countless UK companies profiting from paying tax in the UK on their French, German and other sales is higher tax countries. This is what happens when education gets dumbed down and people can no longer think for themselves.
...is because the various lawmaking institutions around Europe make this the most sensible way to do it if you don't want to be sued by your shareholders. (See today's story about HP.) If you think Amazon are actually committing fraud, tell the police. If not, don't blame them for playing by the rules.
Let's not lose sight of the fact that every *legal* tax dodge indicates that the *politicians* have screwed up.
>every *legal* tax dodge indicates that the *politicians* have screwed up.
In AUS it was the result of a specific High Court case. The court held that tax dodges are legal unless the tax authority can demonstrate that they specifically break a specific law, interpreted as narrowly as possible.
Singapore had a similar case, and the court decided the other way: in Singapore, if it looks like tax evasion, smells like tax evasion, tasts like tax evasion, and evades tax, it IS tax evasion.
The politicians in AUS were by no means happy with the result, which has meant decades of extremely volumous tax law which tries to cover every possible loop hole. The only ones happy with it are the tax lawyers.
..I rather clumsily suggested that corporate tax shoud be abolosied and transferred to an extension on VAT at point of sale.
A thought has now struck me; as supply and sales are now international, then how about taxing internationally as well? Company x made y profit internationally after all various local taxes were paid. z% of its sales were made in this country so corporation tax should therefore be z% of y.
Shouldn't need all countries to be on board to make it happen; and the corporate would have to file overall figures in its home country anyway.
Daft idea?
There are many side effects of taxing corporate profit rather than sales. In theory -
- Struggling, barely profitable companies get to keep employing people without having to worry about the extra tax/sales disincentive that would come about if your plan was put in place
- It encourages reinvestment into the business. Why pay tax on profits if you can plough much of it back in and make the company even better?
- It hits those that can pay (profitable companies) vs indiscriminately applying to people who may or may not be the best targets. As the other poster mentioned, VAT is regressive.
The theory breaks down when profits can just be spirited away though.
"Company x made y profit internationally after all various local taxes were paid ..."
Working that out correctly would need an army of forensic accountants, each working for their own government, since governments would then be in competition with each other to claim as much of the pie as possible. Also, the 'target' company would develop sweetheart deals with sympathetic (bribeable) governments.
It's a mess :(
At some point a multinational (lets take Starbucks) is going to publish it's overall set of consolidated accounts, usually in a nice glossy brochure telling the shareholders how wonderful they are doing.
Why not take the figure for taxable profit from there and ask them to explain why their UK companies profit is so much lower, but only taking into account local factors. So lets say Starbucks make 10% and the UK declares 1% for tax purposes then if the cost of employing staff, rent etc.(local conditions only no transfers, no relicensing, no reselling beans intercomapny) account for the 9% difference against the group average then thats ok, if they can't account for all of it their taxable profit is adjusted to the % of revenue they can justify.
Funny thing is I seem to recall many years ago our small French subsidary being asked exactly this question by their tax office and having to justify why they made a lower proft (French labour laws being the simple answer)
all that they need to ask for is how much was delivered to addresses in Blighty.
Where Amazon is operating as a fulfillment center, then the 'sale' value is how much the charged the e-shop/whatever to pick, pack & post the item.
It is sometimes a mistake to look at the nitty gritty.
Their dodgy (but pretty standard practice) tax evasions?
Or the fact that they don't really make a profit as such?
If I was one of their shareholders, I'd be a lot more concerned about the latter ;) Seriously, check out their financials and share price compared to other big tech companies. They barely break even, and their share price is insane (a price to earnings ratio of something like 3000 I seem to remember - if apple had that kind of ratio it'd be worth more than the entire universe!)
And really that's the issue for us in the UK. The government is worried about us losing some tax. A valid concern, but I'm more worried about how our UK companies are supposed to compete with a company that doesn't need to turn a profit to please their investors.
It's all very well people getting on their high horse about tax avoidance but it's us the Amazon customers doing the avoiding: I buy from Amazon and save 20% on the high street price. Where does that saving come from? Because they're paying tax as 'efficiently' as possible and they're doing that on my behalf.
Quite frankly, the pudgy-faced chancellor gets quite enough of my cash already so I'm more than happy with that arrangement.
Well partly - there's also the fact they don't need stores in expensive town centres but have warehouses in the middle of no-where, and all the lower level staff can be picking & packing rather than being on the shop floor waiting for customers.
I doesn't deny that the tax savings do have a significant impact on their ability to lower costs, but as we've seen from various electrical goods retailers recently the impact of being able to sell on line rather than from a physical store DOES make a difference
I rarely stand up for big businesses - they irritate me in the way they treat people and the environment like crap in pursuit of profits, but at the end of the day, I believe that anyone, whether they are an individual or a corporation, would pay less tax if they had a legal option to do so.
If there is no evidence that these companies have broken the law, then I don't believe they should be getting shouted at and called 'immoral' and 'ridiculous' by our MP's (stones, glass houses and all that anyway).
I also feel that calling for people to boycott these companies over this tax issue is short sighted and irresponsible, as they bring money into the economy (suppliers, transport, shopfitters, etc) and the governments purse in other ways (Tax and NI on the pay of their staff, VAT).
Does this make what they are doing right? No, not at all. They should pay their tax. But rather than dragging them to committees, shouting at them and throwing tantrums, boycotting them and turning their branches into creches, we should be looking at making the law and the agencies that should be collecting these taxes more robust.
Thanks for the link. However it is worth noting that politicians rarely do their job, unless they have very strong motivation to do so. Reports, no matter how good, make no incentive at all - it is the money that follows which do (e.g. big business around wind turbines).
In this case it is the politicians who made all these holes in the tax law and they are the ones who should fix it. Will this ever happen? Doubt so.
One of the interesting things here is why is the PAC apparently looking at business ethics and business taxation when its scope is actually about whether public expenditure is properly managed in line with Government policy. Business ethics, tax policy all belong elsewhere. The only valid query here is whether HMRC is acting properly.
After all PAC were to look at business ethics then presumably all of the Parliamentary members with external business interests - most pointedly including the Chair - would be on the witness stand or at least excuse themselves on a blatant conflict of interest and not be the interrogators.
If it isn't in scope then the PAC is wasting their own time (which we pay for!) and the time of their witnesses. They wouldn't do that at public expense for their own political ends would they ...
"gives sales through the amazon.co.uk website, but no profits"
OF COURSE IT DOESN'T GIVE PROFIT FIGURES FOR THE UK, THAT'S THE WHOLE POINT OF AMAZONS ARGUMENT.
Amazon isn't paying much Corporation Tax in the UK because it isn't making much profit in the UK.
The WWW has only been around for 20 years (and commercial for little over 10). Tax has been around for thousands of years. Current tax laws (of any country) are not compatible with Cyberspace. This is a problem the world is going to need to address (similar to the reach of Law).
I don't have an answer, I don't believe anyone currently has the answer - but part of the solution to any problem is understanding the ACTUAL problem.
If the Lux company owns the stock then they are the ones with the cost of sales and the profit/loss forms in their books and this is where they are taxed.
The UK company is probably working as a service entity, charging the Lux co its service fees and those (less their operating costs) will be taxed here in the UK.
There would be nothing illegal, nor immoral with such structure *unless* the service arrangement is a sham and the EU operation is in fact *controlled* from the UK, in which case HMRC should have a legitimate claim to their EU-wide profits.
This may or may not be the case - more information is required to say either way.
If Amazon and the other companies discussed are not breaking the law then more power to them for managing their finances successfully. If I had the ability to pay less tax then I know I would take advantage of it.
If the government believe this should not be possible then it is the tax regime in place in the UK (and other countries) that needs to be changed. If this was done it would be interesting to see how many multi-nationals would pull out causing the loss of local jobs and income/
Business is amoral and always strives to increase revenue and profits. If I shareholder I would expect no less.
MPs can ask companies to stop their tax dodg...efficiencies as soon as the MPs themselves stop engaging in such shenanigans. Perhaps the MPs should look at re-hiring all the HMRC inspectors they allowed to be sacked and updating a few laws?
All this is just grand-standing for a bit of good PR - it amounts to nothing.
The problem with companies selling EU-wide, and getting the most advantage from their choice of EU country to work from, is something that has led to the EU-Commission starting proceedings against Luxembourg. They think the tax rates are too low. And I have seen reports of Amazon leaning on publishers over VAT. Amazon aren't just trying to minimise their tax liabilities, they're acting in ways that could provoke action under Single European Market principles.
As for the fees for using IP, such as the computer software which Amazon uses, which look like a way of getting money safely out of the scope of EU tax systems, plenty of people have been hit with tax bills for such fake transactions. Sooner or later, somebody is going to want to know how the price is set. And decide that the value for the transaction, for tax purposes, is much lower.
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