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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.
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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.
Instead of contriving hypotheticals, why not answer the question? Why doesn't Amazon charge more now?
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.
Taxes on profits are different than taxes on products
No, they aren't. You've been told they are, you've been lied to that they are, but they aren't.
I've owned a business for more than 20 years, I assure you that taxes are just another expense, just like the utility bill is. It even goes on the books as an expense.
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Yes, yes, you think that if I made $1 million in profit last year and the government wants 30% of that, that it shouldn't raise prices. You'd be wrong.
The "before tax" profit number doesn't mean anything, it doesn't exist. The "after tax" number is the only one that counts.
So in the above case, I made $700k, period. The $300k of tax is just another expense.
If you raise the tax to 50%, then my income goes to $500k.
Now you may say, "well tough, you'll just have to make due with earning less". Nice, but it doesn't work that way. At $500k, the income may no longer be worth the cost of capital investment and it is time to go do something else.
The problem is, the return on capital applies to everyone. If it doesn't make sense for Walmart to do it, then it won't make sense for Target either.
The basic economic principles don't change based on the company.
Yes, prices may go up somewhat.
But if you think about it, at the moment transnational businesses have an unfair tax advantage over national ones.
So companies like Amazon are creating and extending monopolistic positions; not because they're necessarily better companies, but simply because they're able to rig their tax positions; if you don't pay taxes, you can lower prices and take markets that you don't necessarily have any right to.
In other words, tax avoidance of the type they're legislating against is anti-competitive; and that too can raise prices in the long run.
-WolfWithoutAClause
"Gravity is only a theory, not a fact!"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.
Do you think businesses print money? They have to take in more than the cost of doing business is. How is this possible if it is not achieved by passing the costs along to the customers? There is nothing vile about it. It's simple economics.
If they can't raise prices, they'll either see lower profits--which will result in your pension fund making less money--or cut costs. The latter means they'll offer lower wages and less benefits to employees, automate them away, or demand price cuts from suppliers.
Then all the 'EVIL CORPORATIONS SHOULD PAY MORE TAX!' whiners will be complaining that 'EVIL CORPORATIONS ARE CUTTING WAGES AND AUTOMATING JOBS AWAY! WAH! WAH!' because they're completely clueless about the real world.
Each company will do exactly the same calculation Amazon has done, and figure out which method of accounting allows them to keep the most money while remaining able to operate in the jurisdictions they care about. If the others come to the same conclusion, it's not because Amazon said so, it's because the numbers and the lawyers said so.
How is the Riemann zeta function like Trump rallies? Both have an endless number of trivial zeros.
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.
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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.
Again, my point is disagreeing with the premise that taxes on profits will simply be passed on to consumers as if businesses weren't already charging what they believe is an optimal price for making profits.
If a business could deal with a 10% increase in tax by raising prices to make higher profits than why are those prices not already being charged and those higher profits already being made?
It is a nice bumper sticker that "companies don't pay taxes they collect them" and like so much of bumper sticker level understanding it is applicable sometimes. But it is still just a bumper sticker and not a universal truth.
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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.
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"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.
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All costs are always passed on to the end customer. You're not saying anything new here.
SAVINGS, on the other hand, are seldom passed on to the consumer.
In the case of most international companies, they have been saving millions, even billions, in taxes, simply by incorporating some legal fictions into the book keeping. Routing your profits through Luxembourg? Huh, WTF? If you sell products in the UK, you need to pay the appropriate taxes on the products, on the services, on the profits realized in the UK. Ditto if you're doing business in Mongolia, Yemen, Bangladesh, or on Mars.
Amazon has had a loophole closed on them, so they are going to stop cheating the UK out of taxes owed. It's not a new cost. They've been collecting enough money from customers all along to pay those taxes. Now - the profit margin dips a little. Big deal.
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I live in Australia and I would like to see us go down a similar path.
If the UK proves it works I really hope it spreads elsewhere and also leads to the end of the massive profits these companies are amassing. I'm sure there profits will still be quite sizable but this should make it a bit more reasonable. I'm not an economist so correct me if I'm wrong here but it seems many countries are not in the best of financial states at the moment and each of these corporations taking $billions each quarter out of economies without realistically contributing back is a contributing factor in this? If this type of taxing spreads globally it could be a big factor (amongst several others) in getting economies back on track?
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If corporations didn't pay tax, the burden of tax would move further onto the wage earners as opposed to the owners of capital. This also means that corporations will grow even bigger than they already do and become even more uncontrollable than they have already become - see To Big To Fail banks, etc. As to people not seeing that they are paying the company taxes (tax transparency), More assets would end up being owned by corporations (as they will be able to bid up prices) and only indirectly by people, losing transparency of ownership. See MERS and MBS's for what kind of issues this can create.
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
You know in sports when someone finds some way to gain an advantage that is technically within the rules but clearly against the spirit of the game? People get annoyed because they expect fair play.
What Amazon and many others are doing is legal, but clearly subverts the intention of the law. We need to run tax more like a D&D session, where any rule lawyering can simply be overruled by the DM and if you piss them off too much a dragon steps on you.
const int one = 65536; (Silvermoon, Texture.cs)
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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.
SAVINGS, on the other hand, are seldom passed on to the consumer.
What are you talking about? We've never been in a more competitive environment. You have at your fingertips more information about price and availability and the quality of various retailers' services than ever before in human history. Retailers who don't react to that bright light of consumer comparison shopping lose sales to those that do. It's exactly because Amazon (and Costco, and everyone else) use their well-oiled operations and buying power to keep prices down that brings in long-term, repeat customers. Modern retail shoppers are notoriously well-informed and fickle - retailers who aren't competitive are serving a quickly vanishing audience.
so they are going to stop cheating the UK out of taxes owed
Cheating? Are you saying they were actually operating outside of the tax law?
You know they weren't. The law has now changed, and they're changing their operations and accounting to reflect that change. Their competition has to do the same thing.
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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"
In a market economy you only can rise prices, if people are willing to pay. Prices in a market economy are determined by the benefit a good may provide to the buyer and the price the seller wants to have. Also it is determined by the production and delivery cost. If one side must pay higher taxes (on its profit or on the price volume, which would have different effects) this only allows for higher prices if the seller is willing to pay more. However, with stagnating income and competitors which are highly interested in getting customers back from Amazon (in this case), a price increase is not possible. Have a look at the deflation and low inflation happening in the EU.
BTW: You claim low taxes would be good for business. Without taxes there would be no state, no police, no schools, no education. This would result in no society and no business at all. Therefore, it is important to collect taxes. And in general there are two types of taxes possible. Sales tax, which indeed causes a price rise and directly causes inflation, and profit taxes, which in general only cause a shift in the lending pattern. If it is applied to a whole economy, and cannot be avoided, then this only minimizes the income of the lenders and has no effect on prices.
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.
If the competitor could have done this, they should have done it *before* the tax increase. Why would they wait for the government to add the tax, just undercut your competition preemptively. That's why taxes disturb competitive markets. All of those things that you describe have already been done. So the only choice left if higher prices. There is a different analysis for non-competitive markets that I'm not skilled in economics enough to examine.
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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That's just so much meaningless gibberish with misleading conclusions.
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.
Corporate taxes come from one category of individual: those involved with a corporation. This means shareholders. Employees might pay a portion of it, but only if they won't be hired by non-corporations. Consumers might pay a portion of it, but only if there is no competition from non-corporations.
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.
A corporate tax lowers the mean rate of return for corporations. Investors could switch to non-corporate investments, but they already have money invested in corporations.
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.
Why not go a little further? No taxes are ever paid by individuals, taxes are paid by protein and DNA molecules. And the protein and DNA molecules 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?
Very few people, because it takes a special brand of ignorance to think that way. If a lower proportion of the taxes were paid by people involved in corporations, then the tax rate on people not involved in corporations would be higher. Most of us aren't major shareholders...
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.
Corporate taxes are the penalty portion of the system designed to allow profits with little or no responsibility. That low responsibility comes with a price. If some investors choose to switch to a form of investment in which they are more responsible due to higher tax burden on corporations, that is fine with me.
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