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Amazon Decides To Start Paying Tax In the UK
Mark Wilson sends word that Amazon will begin paying corporate taxes on profits made in the UK. The company had previously been recording most of its UK sales as being in Luxembourg, which let them avoid the higher taxes in the UK. But at the end of last year, UK regulators decided they were losing too much tax revenue because of this practice, so they began implementing legislation that would impose a 25% tax on corporations routing their profits elsewhere. Amazon is the first large corporation to make the change, and it's expected to put pressure on Google, Microsoft, Apple, and others to do the same.
The UK decided that Amazon will start paying tax in the UK.
Don't waste your vote! Vote for whoever you want, unless you live in a swing state it won't matter anyways
Amazon has historically reinvested almost everything in expansion. Try and get some cash out of companies like Apple that actually generate huge profits for their shareholders and then it might be interesting to see what happens.
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No, this is NOT more taxes. This is taxed OWED, by evaded.
And personally, I am tired of tax cheats.
I prefer the "u" in honour as it seems to be missing these days.
That assumes that the business can raise prices without consequence, which is an invalid assumption. Amazon has to account for what consumers will do if faced with higher prices through Amazon, and what the effect of that will be on revenues. There's also the behavior of competitors to consider, as Amazon's prices go up it encourages other companies run by people willing to accept lower profits to step in and take Amazon's business away.
You also have to account for the fact that raising prices to cover taxes is a no-win proposition. Taxes are a percentage of profits, and are not deductible from revenue when calculating profits. So if Amazon raises their prices (and, assuming no change in consumer behavior, their revenue) by 10%, they also increase the amount of taxes they owe by 10%. So now they have to raise their prices again to cover the additional tax, lather rinse repeat. Consumers tend to get fed up with this cycle and vote in politicians willing to increase the tax rates as profits go up, which leaves companies facing a choice between accepting the taxes and somewhat lower profits or closing down and accepting zero profit.
That's not how pricing works, no matter how much people seem to think so. If they could get away with raising prices they already would have. They don't need the incentive of taxes.
That's a great red herring you made there, but it's irrelevant. Taxes are on profits, not sales.
I don't respond to AC's.
Making up yet another straw man argument doesn't prove your point. Taxes are not 90% of profits in general - they are much smaller. If taxes were somehow fixed and happened to be close to the amount of profits, and there was price elasticity, then prices would probably go up so the business would be able to show a profit. But that's not the situation. Amazon is happy to have no profit as long as the business is growing. A better example is microsoft or google - they make tons of profit, and taxes are far below the profit. They easily and legally (but immorally) avoid taxes through the standard tax cheats, like the irish and netherlands tax dodges. They won't raise prices if they stood to make a little bit less profit.
There's nothing immoral about tax avoidance. Tax evasion, maybe.
The law has simply changed such that past avoidance schemes are no longer legal.
Specifically, all corporate taxes paid come from three categories of individuals: consumers, who pay higher prices for items to cover the taxes; employees, who make lower wages to cover the taxes; and shareholders, who earn lower returns (and note that the two former categories are often also shareholders, via their pension plans). Suppliers can also lose, but they're generally corporations as well, with their own employees and investors who actually eat the loss. In the long run, though, the investors don't lose because capital flows away from lower returns and towards higher ones. So companies must find ways to keep their returns up to somewhere near the mean rate of return.
Once you understand that no taxes are paid by corporations, ever, then you should also recognize that corporate taxes are not only ultimately paid by individuals, but the individuals almost never realize they're paying it. How many people know their prices would be lower, wages higher, or pension more secure, if it weren't for corporate taxes? And, therefore, how many voters have any interest in opposing corporate taxation? To politicians and voters, corporate taxes look almost like free money. Ratchet up the corporate taxes and no people get hurt, just those nasty corporations. (Actually, politicians sometimes get even more value out of threatening corporate taxes than enacting them, since it tends to encourage said corporations to buy off, er, donate to their re-election funds.)
I assert that while taxes are necessary, the electorate should see and understand exactly what they're paying, so they can evaluate the value they're receiving for the money they're paying. Hidden taxes are evil, and therefore corporate taxes are evil, and should be abolished, not raised.
Note to ACs: I usually delete AC replies without reading them. If you want to talk to me, log in.
There's nothing immoral about tax avoidance. Tax evasion, maybe.
The law has simply changed such that past avoidance schemes are no longer legal.
I used to feel that way, but I think it's all part and partial of the way that the US is destroying itself, by ending campaign donation limits, making corporations almost people, legalizing hiding who donates to candidates, and the legal way that corporations and rich people give money through lobbyists and get tax breaks that benefit only them. It's wrong. I'm not against big companies, I was fortunate to work at two of the largest software companies in the world, both mentioned up above in this thread. But I do want basic checks on their power. What do you call the use of unchecked power, that hurts the system but might help your own causes, but destroys things otherwise? I call that immoral. It's certainly legal. It's wrong too.
That assumes that the business can raise prices without consequence, which is an invalid assumption.
Only if the competition can avoid the taxes. If all of the players in the market get hit with the same taxes, then all of them absolutely can and will raise prices, and there will be no consequences.
Taxes are a percentage of profits, and are not deductible from revenue when calculating profits. So if Amazon raises their prices (and, assuming no change in consumer behavior, their revenue) by 10%, they also increase the amount of taxes they owe by 10%. So now they have to raise their prices again to cover the additional tax, lather rinse repeat.
This is a standard financial calculation, and a trivial one. The tax is 10%, so the increase is 10%, but there's 10% tax on that, so 1%, meaning the increase needs to be 11%, continue ad infinitum (literally). In other words, the new price needs to be 11.1111...% higher than the old one to keep profit margins unchanged. More generally, the increase needs to be the sum of the infinite series with terms r^n. This series is convergent if r < 1, and converges to 1/(1-r). So for a 25% tax, the company needs to increase prices by 1-1/(1-.25) = 33.333...% to keep profit margins unchanged after accounting for the new tax.
Of course, it doesn't quite happen like that. In practice, companies don't instantly raise prices. They do take the hit for a while, where it gets absorbed by the investors, not the customers. Then they allocate a portion of the losses to employees, in the form of reduced raises, or benefits. Then they raise prices. But eventually they get back to a steady state of roughly the same return on assets that they had before the tax hike.
Note to ACs: I usually delete AC replies without reading them. If you want to talk to me, log in.
"There's nothing immoral about tax avoidance. Tax evasion, maybe." - paying lawyers/accountants to deliberately manipulate the system is immoral when it screws the public and avoiding tax is screwing the public at the end of the day. If all corporations paid the taxes, then the public would be taxed less. Tax evasion is illegal and criminal.
"The hands that help are better far than lips that pray." - Robert Ingersoll (1833-1899)
Uhhhh - yes, there is something immoral about tax avoidance. Virtually all of the schemes used to avoid taxes were lobbied for by corporations, and often enough, bribes changed hands before the immoral laws were passed, making avoidance possible.
Simple loopholes that were never intended to start with might be addressed by representatives, but again, corporations are all over that, handing out bribes to prevent the closure of loopholes.
We didn't get where we are today by accident. The state of international taxes has been intentionally created and nourished by international corporations.
And, this state of affairs is indeed morally reprehensible.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
You don't seem to get it either. If you can increase your profit by raising prices, you should do it, regardless of the tax rate. Yes, we understand your point that at some level taxation lowers ROI to the point that it's not worth it to invest. Nobody is suggesting the tax rate should be that high.
-- Let us endeavor so to live that when we pass even the undertaker shall be sorry. -- M. Twain
I agree to the extent that lots of taxes are simply passed through to customers. If you didn't, you wouldn't be in business for long. And yes, many of those taxes apply irrespective of company size.
But certainly not all of them. As is: different locations have different cost structures. They apply to different aspects of your business. Given the amount of goods that are transported throughout the country, it should be clear that capital costs (cost of setting up production facilities), labour costs, material costs, energy costs, insurance costs, labour productivity, production efficiency, spillage, waste and theft etc. ensure that you get different cost structures in different places.
As soon as you have that, you get a mix of suppliers in one market with different cost structures. As a result you get different profit margins and different tax burdens for different suppliers, and with it different returns on capital. Transaction costs, various constraints, and uncertainty about future costs limit how easily businesses can set up shop elsewhere.
Having a mix of suppliers with different cost structures and different tax burdens wouldn't be possible if taxes were just another cost.
No. The situation you describe is where you total all costs your business incurs, decide how much profit you'd like to make and add that too, factor in any profit taxes, and then charge whatever results to your customers.
That only works if your customers want whatever it is you're selling at that price and there's no-one around to compete with you.
In other words: a niche business.
What you're saying is that all taxes are, in the end, paid by society as a whole (including businesses), which is correct. And yes, if society wouldn't be paying taxes, it would quite simply pay for everything taxes are spent on in other ways, so ultimately all taxes are an expense.
But the fact remains that taxes on products weigh more heavily on individual consumers and taxes on profits weigh more heavily on "capital".
This is simply because an increase in profits will certainly not result in an increase in wealth for individuals that make up the "labour" part of society. They are very unevenly distributed and tend to go towards those individuals who contributed the "capital" part of the equation. Contrarywise, a decrease in profits will not *immediately and automatically* lead to a decrease in wages (and wealth for the "labour" part of society). In both cases "entrepreneurship" is in the way.
To the extent you're saying there's no difference between taxes on products and taxes on profits, that's an oversimplification.
Bullshit.
The "loophole" that Amazon has been using is nothing more than the EU single market, in all its glory, exactly as it was intended to be used. The single market was created specifically so companies could set up a headquarters in the EU once, and then sell to the entire trade region without having to register or pay taxes in every single country. This wasn't some clever loophole or corporate scheme, it was constructed, very deliberately and specifically, by politicians that wanted to bring Europe together to avoid another re-run of the World Wars.
When the EU and its predecessors were being set up, governments were all super keen to establish this sort of single market because they saw it as a way to allow their own home-grown champion companies to expand, by selling to people elsewhere on the continent. Paying tax in a single country is fundamental to having a single market, otherwise the paperwork involved with understanding and filling out dozens of tax returns in langauges you don't speak would just be overwhelming. At the time, presumably those politicians didn't care that this meant one day there would be non home-grown companies selling to their people - creating big new companies takes decades and sure enough this "scandal" has only appeared long after the EU was set up and a new generation of companies started moving in.
Regardless, the idea that these companies are grubby scheming tax evaders is pure, unadulterated propaganda. They're doing exactly what they were intended to do - set up a single HQ and sell to everyone from it. The idea that what was once desirable is now immoral is being pushed by the UK media and government to try and distract people from the core fact that there are going to be way, way more cuts and they will be way deeper than anything that's happened up until now. That's not Amazon's fault - the amounts involved are trivial. The fault rests solely on the British people and their leaders.
You are mixing morals with laws. The two do not always match.
It may be legal to funnel taxes out of a country where you make your profits, but I have not yet seen anyone make a convincing argument that it is (morally) right.
A lot of things are legal, but not moral. Lying to your best friend, cheating on your wife, pissing in the pool.
On the other hand, there are things that are moral, but illegal, usually because laws change slowly or don't cover all edge cases. Fortunately, many countries have a permissive judicial system where a judge and/or jury can decide that yes it broke the law, but in this particular case it's (morally) right to let it go unpunished.
They are not the same. Tax evasion is illegal, tax avoidance is at the very least a gray area, and in the extreme way most corporations implement it, certainly not moral.
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Usually I call that "government"....
"I do not agree with what you say, but I will defend to the death your right to say it"
Free trade is desirable now? My, my... how much koolaid did you drink?
Free trade is only desirable to the stronger economy/ies in the bloc. For example: The Eurozone benefits the already established industrial powers (Germany) while giving no incentive for the smaller countries to set up their own factories. In a free trade agreement, Germany can now dump all of their products in a smaller country and take all of their money. Germany doesn't need to buy anything from them: they already make everything their need - so basically the smaller country is just a raw material supplier, or purely agricultural exporter. The smaller country is now doomed.
This is the real truth about free trade agreements.
So you say: then don't sign the FTA! Sure: now Germany flat out refuses to do business with you (so much for the "free market" spirit). Or they pressure you with debt you already have with them.
No. Free trade agreements are not a solution to anything. They just perpetuate the "xxxx country is an industrial power while yyyy is just a carrots producer" stereotype.
I am pretty sure that Amazon did not originate in Luxembourg, that they do not have any significant infrastructure in Luxembourg, and certainly most of the products they ship are not made in Luxembourg.
I would not have any problem if their actual warehouses were all in Luxembourg and all shipments departed from there; however, they most certainly do not. It's a good thing to pay taxes from a single country when selling to several, but one must pay taxes where the value is generated, not going around shopping for the lowest rates.
The single market was intended to be used for simplification, not for tax avoidance.
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