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Amazon's Outrageous Tax Dodging Ways

At least, according to the Guardian, who seem to be rather het up about this, Amazon is dodging taxes in some manner. The problem is that said newspaper really just doesn’t understand international taxation.

Here’s the meat of their complaint:

Amazon’s mounting reserves are likely to fuel demands for reform of UK tax laws. The retailer generates an estimated 10% of its worldwide revenues here, but paid just £2.3m in tax in the most recent three years for which figures are known.

The company’s cash savings ballooned from $3bn at the beginning of the quarter to $8bn by 31 December, boosted by a £3bn fundraising in November. Money held in short term investments increased to $3.4bn.

Like other US technology companies, Amazon has put this money out of reach of the tax authorities by managing its European operations from Luxembourg. Profits collected in the UK and other major markets are funnelled out via a network of subsidiaries, in the form of royalty payments for intangibles such as use of the brand or technology developed inhouse.

Now what Amazon does in Luxembourg is of no matter to the UK taxman. Further, it makes absolutely no difference at all to what tax Amazon pays in the UK.

As to why Amazon uses Luxembourg this is simple. The European Union’s Single Market is indeed a single market. The aim and purpose is so that a company can have just the one corporation in one EU country and then sell to the other 26 from there. Corporation tax is paid where that corporation is, not the sales.

But, of course, Amazon owns warehouse in the UK from which they make their deliveries. Doen’t this mean tax should be paid?

The exception is if you have a “permanent establishment”. That’s what makes you have to pay corporation tax in more than one country. Have a “pe” in the UK and you’ve got to pay some UK corporation tax. So, are warehouses a permanent establishment? No, no they’re not, we actually have a treaty about this:

(3) The term `permanent establishment` shall not be deemed to include:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

So, no, Amazon just isn’t liable for UK corporation tax at all. This isn’t tax dodging, it’s not tax avoidance. It’s simply and purely what the law says.

There are those who disagree of course. Like the people who wrote this possible law:

(2) Arrangements are not tax arrangements if—
(a) the arrangement was specifically permitted by legislation or regulation
relating to any of the taxes referred to in section 1(3) or is clearly
consistent with principles on which the taxes referred to in section 1(3)
are based whether express or implied,

This new law is supposed to do away with all of the things that Amazon, Google, Facebook and the rest have been getting up to. But as you can see, if an arrangement is allowed in law that it’s still allowed. And what Amazon is doing is allowed in law: therefore this wonderful attempt to stop it won’t work.

In fact, the person who actually wrote that bill stated that it would abolish tax avoidance. Given that it would not abolish what Amazon is doing therefore what Amazon is doing cannot be tax avoidance.

All of which rather means that The Guardian might want to brush up on tax law really.

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