UK.gov cloud fave Amazon comes under fire for tax bill Amazon - whose AWS business has been increasingly drumming up biz with the UK government - has once again come under fire for its tax arrangements in the Blighty. According to its Companies House filing, the firm’s corporation tax halved in 2016 to just £7.4m, on sales of £1.4bn - prompting calls from Margaret Hodge MP, former …
Interesting article on why Amazon's tax bill has dropped.
Seems like they're paying their employees more, in the form of shares in the company; so they're not only paying less tax, they're making honest underpaid workers into capitalist share holders - the bastards!
This is one of the major reasons for share-based compensation being so ludicrously popular. It's a non-cash charge (i.e. costs the business "nothing") that simultaneously compensates your employees, provides a solid base of long-term shareholders, ties those employees to the company for 1-4 years, links their compensation to performance and ensures you don't pay corporation tax for years to come.
However it is a real charge and eventually those shares (once the lock up is over) are taxed as income, probably a much higher rate than the company would have been charged in the first place. In the UK that's typically 40/45% rather than 0-19% on corporation tax. More importantly it's taxed as income at the point at which the shares are accessed by the employee (1-4 years later) rather than at the time they're granted, hopefully at a much higher valuation
All in all is that a terrible thing? Only if Amazon are (as the BBC are claiming) regularly doling out awards the tune of £3,599 per year with no lockup in lieu of salary, with the expectation these awards are immediately sold back (possibly to the company). There's a good argument for tightening the regulation in this area, but I can't for the life of me think of a sane way to do it without damaging the activity this exception is intended to support.
Amazon don't pay and corporation tax because Amazon don't make any profits! How hard is this for people to understand? It really isn't complicated.
We don't charge tax on turnover, as that would bankrupt companies with high turnovers and low profits, like say most manufacturers. We tax profits. And Amazon invest their profits in growing the business.
Now the people who should be outraged are the shareholders. I think Bezos is running it too much as his private train set, doing new things that interest him, rather than paying dividends to the shareholders. But it's not like he hasn't been doing this for the whole like of the company, so they've no reason to be surprised.
Presumably they're hoping that it'll get to some point and stop re-cycling its profits into investment, and suddenly cash ahoy! But that may never happen.
As for Hodge, this really is basic stuff. So the only conclusion you can draw is she's gone for political point-scoring, rather than doing her job. Clearly there are companies like Google, in particular, who've bent the law past breaking point in my opinion - for example when their sales team were all UK-based, but they used to still booked all the sales in Ireland.
But even a lot of the other stuff she's shouted about was merely the operation of the EU as designed. the Single Market rules say you should only have to set up in one country, and pay all your taxes there, while operating in all the others.
So there are legit things to complain about, but you lose a lot of credibility by also making noise about all the other cases that are running things the way the system is designed to.
Ian Reissmann,
I presume the patronising reply was aimed at me?
I do understand. It's very simple. People have been moaning about Amazon not paying any tax for about ten years. But they've never made much in the way of profits. As they recycled them all as investment into growing the company.
So while it's possible they may have moved a bit of tax from one jurisdiction to another, in general a company that makes $100m globally one quarter and loses $50m the next and pays a few millions in taxes in the UK each year is probably doing very little wrong.
I'm fully aware that companies deliberately complicate their tax affairs sometimes. But Amazon didn't look to be particular offenders. Except for when they were abusing the Channel Islands VAT exemption a few years ago.
Interestingly I just looked up the figures. So it looks like I'll have to go back and edit my posts. In 2016 they started making actual proper profits. So I guess the shareholders have finally kicked up a fuss, as I suggested above. They look to have made $1.5bn last year - which might well be about the same as the total of the previous ten years - while they pushed vast sums of cash into huge server farms all over the world.
No, Microsoft started making gobs of profit by the late 80s when everyone was buying DOS licenses, then Windows, then Office, then Windows Server. Amazon is the only megacap stock that makes almost no profit, because its investors continue to assume that "someday" they'll start making tons of profit sufficient to support their elevated stock price.
Making profits doesn't mean dividends are paid. You can pile up cash, use cash for buying other companies (that's a capital expense and doesn't reduce reported profit) use it for buybacks, or use it for incentives (i.e. stock options)
Google makes billions of dollars, and has never paid a dividend, as just one example.
It's a scandal indeed.
Why do we have a tax system that an accountant can do some jiggery-pokery and suddenly not be liable for billions in tax?
Because stupid politicians don't know how to draw up a fair tax system, legislate it, or enforce it.
Amazon ARE NOT BREAKING THE LAW. They have clearly said that. If they were lying, you could take them to court. Hence, the problem lies not with Amazon (who are required to provide shareholder value), but with the tax system that allows such easy and massive circumvention in a legal manner.
If you want to point fingers, point them at your golf-buddies who have created a tax system full of loopholes that they themselves exploit.
If you want to fix the problem, tax it properly. Actually sit and ask an accountant "how would you avoid this", and then put in measures to stop that. Or, alternatively, make a tax that you can't avoid (e.g. one on income rather than profit).
I'm sick and tired of politicians blaming multi-national corporations who have no morals for failing to comply with something which is only a moral obligation for them (not legal). If you have a problem with that, solve it, by making it a legal obligation. Then you can take them to court.
It's like me blaming people for taking all my belongings when I knowingly offer them on the street corner "for whatever you want to pay me" and I end up losing everything in my house for £4.38. Perfectly legitimate, and who's the idiot? The guy who paid me a penny for my entertainment system, or the guy who said he could have it for that?
This! Have an upvote!
I read somewhere, some time ago that if everyone who earned over £x,000 paid tax at 22% and corporations were taxed at 22% of all sales* and that both these stupid loopholes and our ridiculous tax laws** were abolished then the government would bring in something like double what they were at the time.
In essence, simplify it and make it fairer.
*It was a fair while ago so I am vague from memory if it was sales, revenue, profit, turnover etc but it did make sense at the time.
**Two examples - we apparently went from two A4 binders of tax law in 1997 to seventeen by 2005. We even have several pages prescribing what makes a boot as opposed to a shoe because boots, being classed as PPE aren't subject to VAT whereas shoes (even steel toecapped ones) are not PPE therefore are subject to VAT...now isn't that bonkers?
"...Then you would be very hungry as retailers like Walmart make about 3-5% profit..."
False logic.
1 - what a USA retailer has to do with UK tax law...? And yes, I know they are the parent company of Asda, but still.
2 - Let's just take food since you brought it up. In the race to bottom, we've seen the introduction of some of the least healthy foodstuffs I can remember in my lifetime. You can have cheap, convenient or healthy but not all three and rarely any combination of two where one is healthy.
3 - Staying with food, we're terribly, terribly wasteful - see here: https://www.theguardian.com/environment/2017/jan/10/uk-throwing-away-13bn-of-food-each-year-latest-figures-show
13bn of food thrown away whilst we have families who work needing to attend food banks.
4 - At what point does enough become too much? How can it be right that some of these large companies would prefer to put employees on zero-hours contracts to maximise profits? Profits that are then offset against loopholes to minimise taxes that directly impacts everyone?
So tell me again how you can equate fairer tax to going hungry...
TonyJ,
It's not false logic. You don't tax companies on turnover. The UK supermarkets, at their pomp in the 90s, made 18% operating profit (before taxes and investment and the like). So a 22% turnover tax would have bankrupted them overnight.
They all make considerably less now, due to competition from the likes of Aldi/Lidl and the internet. And customers becoming less loyal.
Plus you need to have get-outs from some tax rules. Yes, our tax code is way too complex. But there are still some legit reasons. Because if you don't have rules, people will exploit that too. Any time you have similar items at different tax rates, you'll have abuses.
There will never be a perfect tax system. Because there are always people with an incentive to get round paying, and there are always people with good reason to be exempted. And sometimes theh first pretend to be the second, or manage to game the system to share in their benefit.
A 22% turnover tax would be unlikely to bankrupt supermarkets directly, although that might happen as a side effect of it destroying the economy.
A 22% turnover tax would lead to all shops raising all their prices by at least 44% and probably more than 100% overnight. (22% for the shop, 22% for the supplier, probably an extra 22% for the distributor, and similar percentages of some smaller sums for the ingredient suppliers / producers / distributors).
Companies would also start start sourcing as much as possible from suppliers outside the UK that are not subject to this tax, who would be much cheaper - the UK shop would still have to pay the 22% but the manufacturer and it's suppliers wouldn't have to. Exports would drop to almost zero due to the added costs of this tax.
The price rises would cause lower-paid people with no savings to have trouble feeding their families, and the move to increase imports and reduced exports would cause massive unemployment.
That in turn would cause starvation, strikes, and riots. Workers would demand huge pay rises, which would cause further price rises on goods and services, which would cause even middle-class people to feel the pinch. This hyper inflation would risk spiraling out of control and destroying the already seriously damaged economy.
However, this would probably bring down the Prime Minister and/or government, and hopefully before it did too much damage. (It would make the poll tax pale into insignificance, and that brought down Maggie Thatcher). The new PM & new government would promptly repeal the tax.
A very gradual introduction of the tax might work better, but it's still going to heavily penalize products that pass through many companies before reaching the consumer, especially if this tax was implemented worldwide. You can imagine it causing a lot of companies to be vertically-integrated and/or join into massive conglomerates to avoid paying 22% tax on each sale between companies. A PC manufacturer would want to buy a CPU company, a hard drive company, a memory company, a display panel company, a lot of electronic component companies, and even a chemical company to make the electrolytes for its capacitors, to avoid paying 22% on the cost of the components.
It would also cause some businesses to be restructured to avoid the tax - e.g. distributors could stop buying products from producers and selling them to supermarkets, instead they would "facilitate a transaction directly between the producer and the supermarket", and the supermarket could pay them a fee for that, which dramatically reduces the distributor's taxable turnover.
Note that a 22% VAT (perhaps with less / simpler exemptions) is basically a turnover tax modified to avoid the double- and triple-taxation problems of a turnover tax. It's very similar to the 20% VAT we have now so could be introduced without all these problems.
"Where did I suggest that?"
Maybe he assumed you must have defined it. Given that the scheme made no sense to the rest of us it we couldn't even begin to work out how it could have been fair.
I think you may have mis-remembered what you read. Turnover isn't a company's equivalent to salary. As a taxable figure it means nothing until you know what it cost to produce that turnover.
It wouldn't quite be the same thing as VAT, but we do have this exact same thing in the US except we collect the tax at time of purchase. I think you'd find many companies - and 100% of those in a high turnover low margin business like groceries - would simply tack the 22% tax on at the time of purchase. What do you think would happen to the price of an iPhone or Galaxy S, for instance?
Most of those reading this would not really be affected by a 22% tax added to their grocery bill, but those down near the bottom of the economic ladder sure would. You'd be taking a tax on profits, which is more progressive as the burden is shared between customers and owners, and replace it with a tax that would be paid by customers to a much larger degree.
Oddly enough, one of the concrete proposals that she makes at the end of her book is to repeal nearly all of these tweaks.
She also notes that every chancellor stands up once or twice a year with the specific task of "being seen to be doing something" and nearly always isn't actually able to do much. Therefore they do something visible. Therefore we end up with a tax system containing thousands of (overlapping) special cases. This makes life easy for the dodgers and hard for HMRC.
Therefore, as noted above, she suggests that we should repeal nearly all tax breaks.
(Related: I have a book on software testing by a chap named Beizer who uses the US tax code as his "sufficiently complex to be realistic and yet sufficiently widely known to make the book readable" source of examples. Along the way, using the methods in his book, he finds several contradictions in the code. Not being a lawyer, he cannot say what happens if you are found to have breached one of those bots of the code.)
Is a minefield.
IS a Jaffa Cake a cake or a Biscuit?
Tampons are subject to VAT (there is a petition on Change,org to get rid of this)
Books are not subject to VAT yet E-books are.
etc
etc
etc
The biggest complication of the Tax Laws took place under El-gordo Broon. It is a pity the Hammond seems to be intent on adding more and more complexity to them instead of simplifying them.
But like Lawyers and Laws (why repeal one and do a lawyer out of a job) the same goes for Accountants. The more complicated the tax rules, the more accountants we need.
simples really.
I know at least one person in your office understands that companies pay tax based on profits not on sales or turnover. It's even cited in a quote in your article. So please don't repeat the bottom feeder tabloid trick of launching a story on a false premise.
Citing Ms. Hodge is also thin ice when talking about company tax affairs - hopefully you know enough to recognise why.
If you want to do it properly talk about any tricks they may have pulled to artificially reduce or transfer their profits to reduce their UK tax bill, that's if you can find anything.
Legislation and boycotts seem unlikely to change massive corporate tax evasion just because not enough people actually understand and care about how damaging this behaviour is to the UK and other exploited countries.
To make a difference we need government and some socially responsible companies to start using initiatives such as #FairTaxMark and #BuySmart to brag about the fact that they pay tax and are proud of it e.g. "we need our UK people, roads, security, schools, health to run our business AND we actually help to pay for it".
Eventually, when faced with an easy choice, for instance, between Starbucks and Costa, more people might start to think twice before handing their cash to the greedy corporates who do so much hidden damage to the societies that support them.
massive corporate tax evasion
If you have any evidence of tax evasion, you should report it to HMRC, as it is illegal. Tax avoidance is legal - it just means 'paying the amount of tax required by law'.
MPs and journalists really should know this stuff. Amazon invests a lot of money in warehousing, systems, stock, AWS and other investments, in the UK and elsewhere. THIS IS A GOOD THING.
And all of those investments reduce profits, and therefore tax liability. This is the system working as intended.
Amazon also gives us quick & easy access to quality products at good prices - much better than we had before (true for both books & AWS).
Boycott them if you like - but not because they pay the correct amount of tax which, as far as we know, they do.
Apologies, the word "evasion" has a specific legal meaning and, yes, I'm sure Amazon are legally compliant and so I should have used the word "avoidance".
I also appreciate your lovely optimism that Amazon are just building infrastructure and investment in the UK and eventually, when they 'start' to make a profit, they will start to pay their fair share of tax, that would be great.
In the meantime, I think a campaign to encourage debate about where people spend their money would only be a good thing. It might even help to reduce inequality - see recent report from Oxfam: https://www.oxfam.org/en/pressroom/pressreleases/2016-12-12/worlds-worst-corporate-tax-havens-exposed-oxfam-report-reveals
While I do not doubt your sincerity your errors should not go unmarked. Tax evasion is already a criminal matter and with few exceptions that do get prosecuted it is relatively rare. Tax avoidance is a totally different matter. A simple tax on turn over might appeal. Think about that for a moment, the retail food trade runs on margins of about 5% and has massive turn over. So lets tax them at say 22% and wonder why there are no food shops any more. It would simply not be worth opening the shop if you lost 17% on every deal. Where there is some leeway to make realistic changes is on such matters as transfer tax, which have already been started. OK so lets move in on to such as investment allowances, buy a new machine and improve production, great. You get an investment allowance to set some of the coasts against tax. So what should now happen is that the business makes more money and is thus in a position to pay more tax and quite likely pay more staff. I guess tax allowances for investment could be abolished and the business could then run on its cranky old devices with the odd breakdown here and there, lower turn over and thus lower taxes, what a great idea, with luck they will also go bust and put a few more out of work, Great is that what you want?
Perhaps we do need some changes taken after a considered approach and not a knee jerk.
I bet most people are only too pleased to claim their personal allowances against tax, perhaps we should stop that bit of what you call tax evasion, rather than rule following, perfectly legal tax avoidance. I have personally not bothered to chase interests rates as the time spent against the taxable return generated was just not worthwhile. Would you class this as tax evasion as well?
'But it's up to the lawmakers to make better laws'
The existing laws are working *exactly* as intended by those who wrote them.
They just wrote them in the interests of the rich, not in the interests of the rest of us.
https://www.theregister.co.uk/2017/07/21/tech_giants_reveal_massive_lobbying_spend/
Yup, that's a story about the US. It's exactly the same here.
More and more Amazon stuff, even if apparently physically sent and sourced from the UK is "fulfilled" by Amazon Europe (of whatever form) who I assume contract Amazon UK to supply the goods - that way the profit on the goods is paid mainly to Amazon Eu not Amazon UK which is a neat way of legally sneaking around UK tax as the Amazon UK profit is only on the warehousing contract not on the goods supplied. In addition of course, all that IP for the delivery/warehousing infrastructure has to have royalties paid by Amazon UK to Amazon Eu so that obviously eats into profit And no doubt Amazon UK pays Amazon Eu for its data handling ... which is probably contracted out to AWS UK who also pay royalties to Amazon Eu ...
In the world of big business it's not how much money you apparently make but how you can *legally* move it around that matters.That's why small companies don't have a chance ...
Whichever way you look at it, it stinks. Rip up that tax book and start again - Maggie ballooned it and Blair (being a good Socialist) expanded it even further and if that isn't a good enough reason to believe it's a system designed to allow corruption don't know what is ...
We're in the European Single Market. It's designed to allow one company in one country to not have to set-up companies everywhere. This is supposed to create economic efficiency and raise our total GDP. We had this whole Brexit debate about it and everything... So Amazon and many other companies pick where to plonk their offices based on a combination of where they physically want to be, can get staff, and pay less tax. It's how the system is supposed to work.
Anyway as has been said repeatedly, and for years, Amazon recycle almost all their profits into investment into the company. They recycle their profits, rather than holding a huge cash pile (like Apple) or paying dividends to their shareholders.
So globally they pay very little tax on the profits they don't make. This is not pushing the rules to the breaking point, this is a profit tax operating as designed.
Replying to myself as it's too late to edit. I've just looked it up and they made $1.5bn last year. Possibly more than the previous ten years.
I remember reading that the shareholders were getting ugly, as Bezos put more-and-more into investment, and nothing into profits. So it looks like that change has happened. So for the first time they may now have a case to answer. Though it's entirely possible their UK payment is legit, if they do most of their operating somewhere else in the EU at their tax rates, or happened to build a few extra datacentres here or something.
I'm boycotting Amazon because of the way they treat employees - IOW, I don't like them, but this is a crap report . At least the Gruaniad reported the facts. From yesterday's article in the Graun:
"The company received a tax credit of £1.3m from the UK authorities, which it will be able to deduct from future tax bills. Pre-tax profits halved from £48m in 2015 to £24m last year."
So the profit halved, and so did the tax.
Note also (Graun): " Amazon Europe, which is based in Luxembourg and aggregates the billions of pounds of sales the retailer makes from individual countries across the continent, reported a pre-tax profit of €59.6m last year. As a result the company, which clocked up €21.6bn in sales across Europe last year, had a tax bill of just €16.5m." So that's an approximate tax rate of about 27%
Finally - as one poster pointed out above - some of the reduced profits came from increased pay, benefits and bonuses to employees. Given that income tax is generally higher than corp tax then if any of those employees is UK based then the exchequer has probably got a good deal, even ignoring the VAT that the it will probably make from the increased disposable income.
Amazon's business model of making very small profit on a massive sales turnover will always result in low taxes - get over it. If you're going to get angry at Amazon then it should be for the way staff and contractors are treated; Amazon can afford to do better, they should do better and they will if their customers demand it.
he Home Office is currently using an external cloud provider and is intending to move the platform to an in-house Amazon Web Services (AWS) solution, said the firm in a tender notice.
What the hell does that mean? If it's hosted by Amazon it can't be "in-house", they are "an external cloud provider".
Mad.
"take a leaf out of my book and stop using Amazon"
Well done you, of course if you think Amazon should be charging customers more to voluntarily pay a larger tax bill there is nothing stopping you cutting out the middle man and sending a cheque directly to HMRC.
... and yet that investment has resulted in an annual profit of £7.4. Either they are managing to get spectacularly low ROI, or they're cooking the books. Hodge is right.
As has been mentioned elsewhere the company spends a lot of the profits on investment. Shareholders might prefer it otherwise and receive more but the company has always operated on that basis. Some of this investment may provide larger ROI in the future, some won't work out and be a loss but that money has been paid into the country through investment costs, equipment, capital expenditure, etc.
The fact it doesn't come in to the treasury directly as tax doesn't mean it doesn't come into the economy. If you are looking for high ROI with no eye to the future Amazon would not be a company to invest in.
This by no means they are cooking the books, and shows a basic lack of understanding how the company operates by both 'Hodge' and yourself.
*Note: This is irrelevant to work practices and pay rates to the staff and the two should not be confused with each other.
This post has been deleted by its author
If our government is planning to use an outsourced supplier, we should obviously want them to ensure they get a solid, reliable partner with a sound long-term future.
Does a company that can only make a couple of percent profit margin on a turnover of 1.4 billion, really sound like it has a long term future? Looks more like they're on they're last legs.
I suggest that Ms Hodge go on a basic accounting course first before she continues to shoot off her mouth about unfairness and so on. The employees are the winners here with increased share profits, which, OMG, the HMRC will not be able to tax (because of a limit set by a government she was part of! see http://www.telegraph.co.uk/finance/budget/5195341/Budget-2009-The-10-most-significant-tax-changes-under-Labour.html).
So yes, as much as the woman has a point that a behemoth like Amazon *should* pay more tax, turnover does not equal profit, and given that Amazon has since its inception reinvested pretty much all of the revenue it derives from its operations, much to its shareholders' annoyance, this is not new. Perhaps she should persuade the current government (or her own shadow government colleagues) to overhaul the rather extensive tax code and simplify it.
<sigh> Depressing reading.
You can't tax fairly as it'll put companies out of business plus who gets to determine fair yada yada.
It isn't fair that corporations avoid paying taxes.
I like the fact so many of you chose to ignore the fact I admitted up front I couldn't recall at which point in the cycle the taxes should be taken but hey ho, let's not let facts get in the way of a bit of Friday flaming, eh?
Did I, at any point, suggest I'd be the arbiter of what is or is not fair? Slunts.
Cake. Eat. Can't.
Well no, people's argument was that you can't tax unfairly or it'll put companies out of business. i.e. a turnover tax is a silly idea, and that got pointed out. Fair enough that you didn't remember, but you're still in this post sort of admitting your error, while also trying to keep making the same argument - so talking of cake and eating + can't.
Nobody has defended tax evasion. Which is illegal. Most people accept that there's too much avoidance. But the realists get pissed off when everyone defaults to emotional arguments.
There is never going to be a good, easy solution to this. Even if all the accountants at MegaCorp inc. were as honest as the day is long and 100% transparent and public spirited and actively trying to get all their taxes paid to the right government at the right time, it would probably be impossible to get it right. Big corporations do introduce artificial complexity, but there's also a lot of real complexity too. How do you allocate R&D done in the US (or India or the UK) against the profits earned in other countries, or the public image of the business, or the massive cost of tens/hundreds of datacentres or whatever? It genuinely isn't easy. And that's before the EU Single Market comes into it. Which has costs (like corp tax income) as well as benefits.
Whatever way we try to solve the unintended consequences of tax (or any other thing society does), we'll end up with other unintended consequences.
I feel dirty even suggesting this, but Donald Trump may actually provide some of the solution here. He's been talking about changing US corporation tax rules. If he gets it done, that may change the way US companies behave. And stop them being so desperate to stash cash in Ireland and then the Caymans. At the moment they pay 35% tax on their profits, and then their shareholders pay a further 30-40% tax on dividends. So many US companies don't pay dividends. In comparison ours pay about 20%, plus 20%-odd on the divvies.
Worse they're allowed to defer their tax on foreign profits, if they don't bring them back into the country. So they just don't. That's why Apple have over $100bn in cash held abroad and borrow money in the US to pay their dividends.
Give them a lower tax rate so their shareholders start demanding dividends, and stop them from deferring tax until profits are repatriated, and the incentive for these behaviours massively reduces. Then that cash might get used, and boost the economy too.
I admit this assumes Trump being able to persuade Congress to do much of anything, and it being competently handled. So perhaps best not holding your breath...
These UK-based AWS data centres that HMG are so keen on using - when do they get built? In advance of being used, obviously (I trust MPs can work that out for themselves without expert help).
Does that need money? Yes (same proviso).
If, instead of borrowing money Amazon pay it out of existing sales on other business what does it do to the profits on which tax is paid?
What seems to be suggested in TFA is that rather than expand their business with money taken from their own sales Amazon should build up a big debt mountain in order to pay UK taxes. The distressing thing is that this probably makes sense to Hodge. After all when she was in govt. her party proved pretty adept at encouraging the building of debt mountains. Maybe she forgets that it didn't work out well.
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