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Amazon Pays No UK Income Tax, Under Investigation
New submitter artciousc writes with news that Amazon is dodging taxes in the UK. From the article: "Regulatory filings by parent company Amazon.com with the U.S. securities and exchange commission show the tax inquiry into the UK operation, which sells nearly one in four books sold in Britain, focuses on a period when ownership of the British business was transferred to a Luxembourg company."
Clever trick there: "The UK operation avoids tax as the ownership of the main Amazon.co.uk business was transferred to a Luxembourg company in 2006. The UK business is now owned by Amazon EU Sarl and the UK operation is classed only as an 'order fulfilment' business." The HMRC is investigating the legality.
They learnt from the best: Topshop, Boots, HSBC (UK)...
OK. Reverse engineering a bit and filling in gaps in the media reporting, here is my educated analysis. If you, as a UK consumer, buy a book from amazon.co.uk, you are actually hitting servers in Luxembourg and buying the book from a Luxembourg company. Letâ(TM)s call it Amazon Lux. Current EU VAT rules mean that if you are downloading a e-book, Amazon Lux only charges the Luxembourg VAT rates on the sale and hands that VAT over to the Luxembourg government. (This rule is expected to change in two years.) If you are buying a dead tree version, then Amazon Lux has to charge UK VAT rates on the sale and hands that VAT over to the UK government.
There is a separate Amazon subsidiary in the UK, which operates a warehouse and shipping operation. Letâ(TM)s call it Amazon UK. Amazon Lux pays Amazon UK to operate the warehouse and perform the shipping. Typically this is done on a cost-plus basis, so Amazon UK is probably recovering its costs and getting a profit margin of 5-10%. Amazon UK will be paying UK income taxes on this small profit margin.
The tax treaty between the UK and Luxembourg states that if the only thing a Luxembourg company has in the UK is an agent that distributes stuff or stores stuff in a warehouse, then the UK government wonâ(TM)t treat that Luxembourg company as âoedoing business in the UKâ. Amazon Lux can take this position because they claim that the actual âoesaleâ event happened at the servers in Luxembourg when you made the final click on Amazon Luxâ(TM)s website. If this position is valid, then any profit on the sale above and beyond the cost-plus margin at Amazon UK is only taxable in Luxembourg. (And remember that the cost-plus margin is taxed at Amazon UK, not Amazon Lux â" the legal entity that actually entered into the transaction with the consumer.)
The complicating historical question is whether Amazon could move its historical business operation out of the UK to Luxembourg without paying an exit tax. EU law allows free movement of business and capital, but the issue of whether you can bail out of a country to a lower taxed country without any tax consequences is a bit of a muddle right now.
If you think deeply enough, you will have no single direction for your outrage.
Morally speaking, companies have an obligation to their communities.
- that's a load of crap. Companies have an obligation to make money for themselves, that's all, they have no obligation whatsoever to anybody to provide anything, and they only provide something because they want to make money, and that's the best way to have this done.
Anything that companies do is either approved by the market, which buys into it, or it's rejected by the market, and the company fails.
No consumer has an 'obligation' to a company to buy its product, no company has an 'obligation' to any consumer beyond what it clearly states in contract.
You can't handle the truth.
This has nothing to do with things like offets for favored industries. Large companies now move the various parts of their business to whatever location gives the best net tax situation. Multinationals construct structures like the Double Irish and Dutch Sandwich to place sub-companies for minimal tax. Techniques like Transfer pricing are aggressively used to move the profit to the right place to tax it minimally. Games are played with repatriation too.
If none of the options are good, they lobby for the specific incentives they need. US companies operate in Delaware because the state legislature there passes whatever the companies ask for in return for the business. Been that way since the 80's. The Cayman Islands and the Bailiwick of Jersey are popular offshore locations because they bend laws to whatever companies ask them to. Even a low rate on a lot of money is still a lot of money relative to a small country or state.
Yes, this is all legal, but it's only legal because the companies have gotten the laws they lobbied and or bullied for. The result is that we're in a race to the bottom on taxation, where business flows to whoever is running the lowest margin government--which unsurprisingly is usually with the most favorable legislative kickbacks too.
Treasure Islands: Tax Havens and the Men Who Stole The World takes 350 pages to outline just how that happened over the last hundred years, it's a great read for those interested what I'd call "financial tech". The minute you allow companies to influence lawmakers by things like lobbyists and campaign contributions, the inevitable result is making what those companies want legal. The corporate side is unsurprising given that corporations are by definition immoral. The fact that voters are ignorant to how they are being conned is really the problem here. The lawmakers who are complicit and benefitting in all of these schemes shouldn't just be voted out, they should be prosecuted as traitors for hire.