Why Amazon's UK Tax Bill Has Dropped 50% (bbc.com)

An anonymous reader quotes a report from BBC: Amazon has seen a 50% fall in the amount of UK corporation tax it paid last year, while recording a 54% increase in turnover for the same period. This snippet of news raised eyebrows this morning when it was revealed. So what's going on? Taxes are paid on profit not turnover. It paid lower taxes because it made lower profits. Last year it made 48 million British Pounds (BP) or ~$62 million U.S. dollars (USD) in profit -- this year it made only 24 million BP or ~$31 million USD so it paid 7 million BP (~$9 million USD) tax compared to 15 million BP (~$19 million USD). What is more interesting is WHY its profits were lower. Part of the reason is the way it pays its staff. Amazon UK Services is the division which runs the fulfillment centers which process, package and post deliveries to UK customers. It employs about 16,000 of the 24,000 people Amazon have in the UK. Each full-time employee gets given at least 1,000 BP (~$1,297 USD) worth of shares every year. They can't cash them in immediately -- they have to hold them for a period of between one and three years.

If Amazon's share price goes up in that time, those shares are worth more. Amazon's share price has indeed gone up over the past couple of years -- a lot. In fact, in the past two years the share price has nearly doubled, so 1,000 BP (~$1,297 USD) in shares granted in August 2015 are now worth nearly 2,000 BP (~$2,595 USD). Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue -- so profits are lower and so are the taxes on those profits.

Comments

Clarification question

[Gaccm]

The compensation relevant for taxes is the 1000 GBP the stock is worth when Amazon gives it and not its value at the end, right?

Re:Clarification question

[hord]

It would depend on British law. In the US you have to exercise the option and turn it into actual stock before you have a tax liability. It's possible that British law just includes stock options are part of your overall compensation and uses some nominal market value to report it. It does seem weird to me to include non-vested options in a dynamic financial instrument as "compensation" even if it is used to supplement actual money.

Re: Clarification question

[Entrope]

I don't know how UK law works, or whether Amazon UK did something like this (assuming it is possible), but something like this is common in US tech companies. It's called a stock option grant.

A stock option is a contract that one party fulfills by selling some number of shares of the stock to the other other party for a given price. For a typical tech employee, this takes the form of an incentive stock option, where the employee usually has to stay employed (perhaps full-time) in good status (rather than being on administrative leave, or in prison, or what not) for some period of time. For example, the grant might say that the employee can buy 25% of the options after one year, another 25% after two years, and so forth.

The price the employee has to pay (say, $X/share) is called the strike price. If this is different than the market value of the stock, it counts as compensation when the option is granted. Because this isn't very convenient for employees, usually the strike price is the market value at the time of the grant.

When the employee exercises the option to buy the share(s), the difference between the market value at the time of exercise and the strike price is deductible by the employer as a compensation cost. If the market price was $3X, and the strike price was $X, then the employer has essentially given up $2X to the employee. (The employee has to pay taxes on proceeds when they sell the stock to someone else, and the usual rules for capital gains apply: If they held the share for less than a year, it basically counts as ordinary income; if they held it for longer, it counts as a long-term capital gain or loss.)

Again, that's how it would work in the US, but I don't know that this is exactly how Amazon UK did it.

Re:Clarification question

[Anonymous Coward]

expenses can be deducted from revenue

But in this case, the expense is not fixed.

case 1) If AMZN buys/allocates 1,000 BP shares at time T for the employee and holds them in a safe somewhere, it's expense is 1,000 BP. AMZN deducts 1,000 BP from revenue as expense.

case 2) AMZN buys 2,000 BP shares at time T+2 years. AMZN deducts 2,000 BP from revenue as expense.

case 3) AMZN buys 1,000 BP shares at time T. AMZN deducts 2,000 BP from revenue as expense for year T+2years.

Case 3 is obviously fraudulent.

Capital gains

[GeekWithAKnife]

So when employees cash out they will have to pay tax. In the UK once they convert assets to fiat they will have to pay 20%

The interesting this about this is that you can earn A LOT more than than the usual 20% tax bracket and still pay 20%

The company is essentially pushing tax deductions on the employee with the employee seeing this a great deal to pay less tax as well...maybe even make profit as stock appreciates. It all falls apart however when share price goes sharply down and people may end up earning less than they thought they will AND pay tax on it when they cash out.

Re:Capital gains

[Mr D from 63]

How is this different than any other company that gives their employees stock as part of compensation? Its not that unusual. The author is making it out to be some kind of trick. Amazon is paying their employees more, paying less taxes.

Comment removed

[account_deleted]

Comment removed based on user account deletion

BP?

[stealth_finger]

Seriously? Use the very standard GBP if your keyboard doesn't have a £. Maybe if it doesn't you can go on amazon and spend some AD on a new one.

Re:Simple explanation for this

[stealth_finger]

What the fuck are you talking about? Hard work doesn't matter in the UK, we're getting shafted hard and it's only going get harder once they trigger the inevitable nuclear brexit, the harder working the job the harder the shaft. What are these ridiculous and harmful social programs you resent? Do you mean the NHS? Some taxes are worth paying you know. Well, they are if they go to what they're supposed to instead of corporate welfare and massive billion quid bungs to hold on to power.

Just say NO to Amazon

[Anonymous Coward]

and buy from UK Based retailers that pay proper tax.
If you don't then there won't be any retailers left and Amazon will have won.

Re:Simple explanation for this

[Anonymous Coward]

Wow, that even already works now that the UK is still in the EU?

It's beginning to work great. The UK pound is down by 20% in the last couple of yearsand will probably fall below the value of the dollar in the near future. Yen parity will take a little longer after Brexit however. Spending, earnings, everything is down and falling. Including effective tax reciepts. No economy, no money. No money, no taxes. Living the dream!

In other words

[GrumpySteen]

"Hey, let's give corporations tax deductions for the cost of stocks they give to their CEOs!"
"Jolly good idea! CEOs can barely afford a third vacation house and a private jet. They need more shares of stock!"

...time passes...

"WTF? Why are we giving corporations tax deductions for the cost of stocks given to the peasants? This is an outrage!"

Re:In other words

[El Cubano]

Or even better:

"Hey, Amazon and other companies pay crap salaries and have crap benefits; their employees even live in tents in the office park."

...time passes...

"Hey Amazon is compensating their employees better and they pay lower corporate taxes because of it; the need to stop that right now!"

(BTW, in the entire civilized world employee compensation is a normal business expense and pretty much no matter how you compensate the employee, the business gets to deduct the cost of salary and benefits as operating expenses; the only trickery is the parts that the government ignores for tax purposes, like employer-paid healthcare in the US thanks to the work of unions, until Obamacare started taxing "Cadillac" plans, also thanks to the work of unions.)

Re:That's not right...

[Entrope]

Secondly, if the stock goes up, you get taxed _again_ when you sell it. The company isn't paying shit in taxes for this, mind you, they're passing it on to the employe[e...]

That's how capital gains work. Say I pay 1000 GBP for stock, or someone buys it for me at that price. That becomes my "cost basis" for the stock. The market value of that stock increases to 2000 GBP. I have 1000 GBP of capital gains, and if I sell at that price, I pay taxes on that gain. The company doesn't owe taxes on that gain because they sold the share before those gains accrued, so nothing is being "passed on" to the employee.

Re:Simple explanation for this

[schleimkeim]

I know you're joking. But it's baffling that 70 years after the US brainwashed its people against communism, there are still people around who believe this crap.

Re:Simple explanation for this

[Kiuas]

When you don't have to pay for ridiculous and harmful social programs, your tax bill goes down.

Total UK tax revenue in 2016: 716 billion £
Total cost of UK's EU membership after discounting the money you go back in different types of programs and payments: 8,6 billion £, meaning roughly 1,2 % of the total tax revenue or 131 pounds per person per year.

This is shocking to absolutely nobody with half a clue about how politics and economics work.

If you think your taxes are going to go down after this 1,2 % 'saving' boots you out of the biggest trade union in the world, you've probably gotten your political and economic education from the university of one prominent Solarium Sultan from across the Atlantic. Hint: you're going to end up paying more than that 131 pounds a year just in form of increasing inflation, unemployment and increased cost of importing/exporting goods. Not to mention that the fact that your government's expenditure goes down 1,2 % does not mean they will cut taxes by that amount, or any amount.

Honestly, this reminds me of Kronan the Swedish navy vessel that at the time of its sinking was the Navy's flagship and was sent out to crush some Danes. However, because at that time the Swedish navy chose officers based on family lineage instead of any kind of actual competence, this happened:

Around noon, some distance northeast of Hulterstad, the Swedish fleet made what the military historian Ingvar Sjöblom has described as "a widely debated maneuver". Because of misunderstandings and poorly coordinated signaling, the Swedish fleet attempted to turn and engage the allied fleet before they had sailed past the northern end of Öland, which had been agreed on before the battle. Sharp turns in rough weather were known to be perilous, especially for ships that had stability weaknesses. Kronan turned to port (left), but with too much sail, and heeled so far over that she began to flood through the open gunports

While I do not see Britts as an enemy of any kind and had wished for them to stay in the EU, as a metal fan (not the air conditioning kind) watching the UK government execute this 'widely debated maneuver' of Brexit while no-one at the helm seems to know what the plan is even in the short term, I do get reminded of the lyrics to a metal song about Kronan by the Swedish band Falconer called 'Man of the Hour':

Danes in confusion
Surprisingly greet
The self termination
Of the Swedish fleet.
Without firing a round
On the stronger foe
They're victory bound
As "The Crown" went below.

Re:That's not right...

[Mr D from 63]

Err passing it on to the -- s/employer/employee. And a minor addition: The point being companies are paying LESS tax, people are paying MORE tax, and they don't get that it's basically them getting fleeced. It's as if collecting tax will suddenly stop Amazon, Microsoft, Google, and whomever else from operating in the UK entirely. Cowards.

The people are only paying more tax because they are making more money. That's how it works. Amazon is making less profit, paying employees more, and paying less taxes. Employees are making more, how much more depends on the value of stock when they sell it. I honestly think some people here would rather have Amazon not pay these bonuses to employees, and make more profit just so they can pay more taxes.

Re:Simple explanation for this

[Anonymous Brave Guy]

The UK pound is down by 20% in the last couple of years

Sterling was probably overvalued and due for a correction even before the Brexit vote, though. While the referendum result triggered a sharp drop and further falls over the following weeks, the pound has since recovered some of those losses and it now sits roughly in line with the longer term trend against the US dollar. Some economists had been arguing that it should be closer to its current level anyway, so we shouldn't necessarily expect it to continue falling or take any more sharp dives on account of Brexit (unless they screw up the negotiations, of course...).

Re:Simple explanation for this

[green1]

That's not a problem with progressive taxation, it's a problem with complicated taxation rules.
The rules are designed by the rich to make it easy for the rich to circumvent. If the tax code wasn't thousands of pages long, the odds are the loopholes wouldn't exist.

Re:Simple explanation for this

[green1]

Do the social democracies like Germany or Norway invent amazing new technologies like the Internet or smartphones? No, that was the US,

Germany invented the first programmable computer, I'd like to see how your internet and smartphones would have worked without that. Also the smartcard, the first oscilloscope, SMS for cell phones, morphine, x-rays, etc. Norway's inventions include things like Object Oriented Programming.

Do your social democracies like the UK have the best health outcomes? No, that's the US - be chance of survival for infants, cancer, heart disease, HIV...

Despite the US spending nearly three times the amount per capita on health care as the UK (and even ignoring private money the US government spends almost 25% more than the UK on health care), the average life expectancy in the UK is 3 years longer than in the US, all cause mortality in the UK is lower than in the US, and specifically the UK has lower mortality rates for cancer and heart disease, and has half the infant mortality rate of the US. (I didn't immediately see figures for HIV)

Do you social democracies like France or Sweden perform huge amounts of medical R&D? No, that's the US, which provides half of the entire world's medical R&D.

Sweden spends more money per capita on medical research than the US. And in per-capita spending, the US is behind even such countries as Signapore and South Korea.