Amazon faces increasing criticism for UK tax bill

SUMMARY:

The online giant is a favourite of the UK government when it comes to cloud purchasing, but MPs are now calling for a boycott because of its tax affairs.

Amazon fulfillment logo on building - via AmazonHere we are again. Another US technology company, this time Amazon, faces heated criticism over the amount of tax it pays in the UK, despite increased noise and efforts by governments and member states across the European Union to clamp down on unfair tax practices.

According to its latest figures, Amazon paid just €16.5m (£15m) in tax on European revenues of €21.6bn (£19.5bn), reported through Luxembourg in 2016. It’s UK Services arm, which includes the company’s warehouse and logistics operation, more than halved its UK tax bill from £15.8 million to £7.4 million year-on-year.

Amazon cited increasing costs for the fall in owed tax, despite its turnover over the same period increasing from £946 million to £1.46 billion.

In recent years US-based technology companies – including the likes of Google and Facebook – have come under increasing pressure from citizens and governments to stop routing their revenues through low-tax EU member states, in order to avoid paying higher tax bills in each territory.

For example, experts estimate that for the 10 year period to 2016 Google has probably paid around £200 million in tax on estimated profits in the UK of £7.2 billion. That’s a tax rate of around 2.7%, when most businesses based in the UK pay a corporate tax rate of 20%.

Previous UK Chancellor of the Exchequer, George Osborne, struck a deal with Google to pay £130 million in back-dated taxes for the past ten years.

Equally, Apple was recently hit with a €13bn tax bill by the European Commission, after it ruled that the company had been receiving illegal state aid from Ireland, where its EU operations are based.

The latest figures from Amazon – who is a favourite amongst government buyers for cloud-based services – has reignited the debate, with former chair of the Parliamentary Accountants Committee, Margaret Hodge MP, calling for a boycott of the company.

She said:

It remains outrageous that Amazon are so blasé that they can ignore all the anger that their failure to pay fair tax in this country.

It is a scandal they are deliberately manipulating the way they do their business for no other purpose than to avoid tax.”

I hope people take a leaf out of my book and stop using Amazon.

Hodge also tweeted:

The backlash against the company will also likely conflict with the government’s active promotion of the online giant’s cloud business for the public sector. AWS has opened dedicated datacenters in the UK to attract more government business. A number of central government departments and the broader public sector use AWS, including the DVLA.

The UK’s technology adviser, and former CTO, Liam Maxwell recently praised AWS and said:

We’re one of the first governments to implement a cloud-first policy and our reforms have saved more than £3.5 billion. We now have a competitive market to deliver cloud services onshore with the scale of AWS, meaning that companies and organizations can benefit from scalable, pay-as-you-go enterprise compute services. In the public sector, the effect on user experience, project delivery timescales, and costs will be marked. We’re delighted that AWS is now live in the UK, and look forward to it being a strong part of the ongoing transformation of our digital economy and digital government.

In response to the criticism, Amazon said:

We pay all taxes required in the UK and every country where we operate. Corporation tax is based on profits, not revenues, and our profits have remained low given retail is a highly-competitive, low margin business and our continued heavy investment. We’ve invested over £6.4 billion in the UK since 2010 including opening a new head office in London and development centres in Cambridge and London this year, and creating 5,000 permanent jobs across the country in research and development, our head office, customer service and fulfilment centres, to bring our total workforce to 24,000.

Reforming

Some of the technology companies in question – including Amazon and Facebook – have made public declarations that will route more of their business through the UK, in response to the mounting anger at their tax affairs.

And whilst public criticism is likely to play a part, the companies are also likely becoming increasingly fearful of high back-dated tax bills from individual member states and the European Commission itself.

In addition to this, the OECD recently signed a “Multilateral Competent Authority Agreement”, which it hopes will boost transparency regarding the tax arrangements of multinational enterprises.

The OECD hailed the signing of the agreement as “an important milestone” in increasing cross-border cooperation on tax affairs.

OECD Secretary-General,Angel Gurría, said:

Country-by-Country Reporting will have an immediate impact in boosting international co-operation on tax issues, by enhancing the transparency of multinational enterprises’ operations.”

Under this multilateral agreement, information will be exchanged between tax administrations, giving them a single, global picture on the key indicators of multinational businesses. This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax.

The agreement, which is not a new law, but rather an information-sharing tool, should make it harder for companies such as Facebook, Apple and Google to use international tax regimes to their advantage and says that firms must now pay tax in the country where their profits are made.

My take

Despite the anger and the criticism, it can’t be denied that these companies are more than likely following the letter of the law. The problem is, the tax laws are outdated and can’t keep up with the complex structures of a global business that relies on the internet for sales. So really, should we be pointing the finger at the companies themselves or at the governments for not moving quick enough to implement a modern tax regime?

Image credit - Amazon fulfillment logo on building - via Amazon

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