Having returned from our Easter-free break in Bulgaria (we missed the Western Easter and the Orthodox Easter is not until May this year so we miss that too), it was time to catch up with reading, some of which had deposited itself on the doormat. Among these were back-issues of Money Week, the magazine with a strap line “How to make it, how to keep it, how to spend it” – all about investment but also strays into economics, banking and politics, all of which chime with me!
Now there are frequently interesting articles to be seen, well written and generally informative. Don’t believe all the “End of Britain” marketing guff which is general rubbish. It’s not that bad!
I have now got as far back as 29th March when there was a reasonable editorial about Cyprus which has been occupying investors of late, a piece about the resurgence of oil extraction from the North Sea which will save all our bacon, a sensible critique of Osborne’s housing ramp that I outlined earlier and one on the militant lefty who made a million – Derek Hatton which our UK readers will recognise as the ultra-left scourge of the Labour party in the 1980s well known for hiring taxis to deliver redundancy notices.
Then, blow me down but I saw a page by Matthew Lynn titled “Squeezing more tax out of Amazon will do more harm than good”. Now this was a red rag to a bull. Surely an expert investor cannot be suggesting that Amazon’s non-payment of tax is fine on any grounds other than it is legal. You may recall my view – it’s the law that is wrong and should be changed because almost all global companies will do it.
So I read on. The argument went that forcing Amazon to pay tax would result in higher prices and poorer pensions. Lynn confuses two things – Amazon competing with indigenous business and Amazon being an online only presence. Now I do accept that Amazon has a very efficient business that trims the cost down to the penny. Lynn claims that Amazon makes only £0.16 on a £5 book of CD. He may well be right and clearly any bricks-and-mortar establishment cannot compete. But neither can an online business compete with Amazon’s enormous IT systems and search engine dominance.
He then shoots himself in the foot by pointing out that paying 25% corporation tax (or whatever) would add £0.04p to that sum. Wow. So to pay 25% corporation tax, they would have to increase the price by only 4 pence. But how much tax would that generate? Just what is the Amazon UK profit? Here we hit a brick wall.
When hauled before the Public Accounts Select Committee last November, Andrew Cecil, Director of Public Policy, claimed Amazon was a pan-European company based in Luxembourg despite goods being ordered in the UK, delivered from UK warehouses, via UK delivery companies, the goods have never been near Luxembourg (where there are no warehouses) and the sterling bills are printed in the UK. Staff are recruited by, paid by and employed by a UK limited company. Cecil pointed to the 15,000 people employed by Amazon yet when pressed, admitted that the bulk of these were seasonal workers for Christmas.
Amazon UK made an after-tax profit of only £1.2million and a tax expense of £1.8 million on a notional UK turnover of £207 million. But that was all imaginary money because the £207 million was actually a transfer pricing arrangement with Luxembourg and Cecil could not say how much of the Luxembourg business is actually sales in the UK.
Amazing that such an efficient company claims not to know how much profit it is making in a major profit centre. Out of €9.1 billion sales Europe-wide and a €20 million Europe-wide claimed profit (0.2%) Cecil claimed not only not to know what was the UK element of profit. He also didn’t know who was controlling the European part of the company which clearly swallowed a lot of the real profits. Because if the profit is only €20m on sales of €9.1b, that’s an awful lot of cost for fewer than 500 employees in Luxembourg – more than €18 million each per year.
Now bear in mind that Amazon has been in trouble not only in a number of European countries but also in its own back yard, the United States. It is not as if they do any research or development in the UK – they are purely a large shed.
So instead of suggesting that, should Amazon pay an appropriate amount of tax because
- they could well afford it,
- it would ensure that other businesses could survive rather than go to the wall or be propped up by the taxpayer and
- reducing dividends would lead savvy investors to move their holdings to other companies, possibly with better returns
Lynn ducks the issue.
Amazon – and others like it – pay so little tax yet depend on the taxpayer for the infrastructure, roads, rail, internet, employment, health care, family credit for their low paid workers etc etc. And yes, some of the investors will be pension funds but again, these can move their holdings elsewhere.
This does not help the general economy one little bit and rather than defend such practices I would have expected a responsible publication to take a different line. Amazon has cleaned up for the original investors and the chances of finding new and original retailers in the UK (and elsewhere) are very slim. If corporate taxation were tidied up, we would all be better off.
Where do you stand on Amazon and tax?
photo credit: thisisbossi via photopin cc
There is a push (again) for charging sales tax for online companies by state. If it were to level the playing field between brick and mortar stores and online companies, I would be okay with it. The real truth is the states want/need more revenue. I believe is equally true for the UK.
I am sure the revenue situation is a reason in all countries but the real damage to the economy is that all competition is squashed and this means less opportunity for new businesses and by extension, investors.
Apart from the tax authorities, in the UK we also have the Office of Fair Trading but they don’t appear to be active at all. There is a large online petition specifically about Amazon but they are not the only offenders – although probably the worst.
If they were investing in research and development here (or anywhere), it wouldn’t be so bad as there are substantial tax breaks for that – Google and Microsoft have research bases here for example yet still pay more tax. The other company that has been in the firing line has been Starbucks but that is small coffee compared to Amazon.
Read the Public Accounts Committee notes that I have linked – Cecil’s ‘evidence’ it is just amazing!
Wow, John, you and Maria go to great lengths to avoid Easter! Ha!
I only form an opinion by backing away from Amazon specifically and focus on the broader issue. Should one company be given preferential treatment over another? Answer = no. End of the story for me.
Amazon is not of course alone, @AJ.
eBay/PayPal are based in Luxembourg as well although they do not deal in physical goods so have no warehousing in the UK (or other EU countries). Google is based in Ireland. Then Vodafone (a British company) also bases it’s leasing operation in Luxembourg so doesn’t pay too much tax in the UK but seems to in Germany. Despite its takeover of (German) Mannesman a few years ago, the debt was landed on the UK operation, I guess on the argument that the decision was taken in Britain.
It is the law that is inadequate but getting that right in the EU can sometimes be a nightmare of negotiations because some things such as VAT (sales tax) are subject to EU limits in theory at least! If you read the parliamentary notes, the Amazon evasion in particular was disgraceful. I imagine a Senate Committee would have had much the same response!
Completely agreed. Taxing with also discourage the practice of “leeching,” which draws intrinsic resources such as land availability away from certain countries.
The issue about developing countries is also true of course, @Mike. A recent point was raised about Kenya which exports quite a bit of food to the UK (isn’t air transport great!). The benefit to Kenya was a lot less than the benefit to middlemen yet if it had been properly accounted, the income to Kenya would have been more than the aid given to that country by the UK and enabled Kenya to prosper. Silly, isn’t it? well perhaps ‘silly’ is too weak a word.
I think any company that is smart enough not to pay taxes is not to blame but the government who isn’t smart enough to collect them. Amazon has big offices in Windsor and they treat their employees really well so they are not skimping on costs like Ryanair, another tax evader, with low wages and horrible working hours.
I would agree that it is the law that is wrong and this becomes an EU issue so God knows when it will be solved. I favour a Withholding Corporation Tax for larger companies to ensure fair taxation across all companies, indigenous or foreign.
Amazon only employ about 2300 people in the UK full time permanently but add a lot of seasonal workers as required. Curiously this works out at about £100k per worker per year which would be about the right amount for someone on £25k or so (4 times factor). Their point is that at no time does Amazon UK actually own the stock that is sold – it is all owned by Amazon EU – so all Amazon UK does is service the stock.
Their warehouses are not robotic, which is quite surprising, but depend on people walking many miles a day – good for their exercise of course. I am sure their permanent staff are well paid – they can afford to be – but I am not sure about the temporary staff which can be more than 10,000 people. And Amazon are building new warehouses as if there is no tomorrow so they must be doing well but couldn’t tell the parliamentary committee what was their profit.
No doubt their transfer pricing will increase by just sufficient that they pay a nominal £1m or so tax next year.
I do agree about Ryanair which has a terrible reputation although that is a different industry. We regularly fly EasyJet to Sofia and I think that sets a much better standard.