Is Amazon UK a tax evader?

How do you generate £3.3bn of UK sales yet pay no corporation tax on any of the profits? Just ask Amazon. Amazon is the UK's biggest online retailer, responsible for 25% of all books sold in the UK. It is bigger (online) than Tesco.

Yet the ownership of the operation is based in Luxembourg - employing just 130-odd people - which is where most Amazon payments and profits go.

Low prices, low tax

The Guardian, which investigated Amazon's tax affairs, claims UK Amazon sales in the last three years were worth up to £10.3bn. Ordinarily this would have supplied taxable profits of possibly more than £300m, the Guardian suggests, supplying as much as £100m in UK corporation tax. (A sum that wouldn't go amiss currently.)

Tax expert Richard Murphy says it's "glaringly obvious" Amazon UK makes its profits not in Luxembourg but in the UK. "But the game of abuse," he writes on his blog, "that is being played means that almost all the profit goes to Luxembourg on this one – and almost none to us.

VAT hole

There's another anomaly to this story: British consumers pay VAT at a rate of 20% on most goods bought from Amazon. But Amazon, it's likely, only pays VAT for products it sells at the considerably lower rate for Luxembourg. Not just a nifty tax move; it helps widen margins, undermining home-grown High Street competition.

HMRC hasn't confirmed whether it will investigate Amazon further. "We can't discuss Amazon for legal reasons," it said, "but HMRC applies the tax laws as they apply to multinationals so the UK receives the tax revenues to which it is legally entitled."

But the issue is important. Retailers like Amazon wield much power. But they also benefit hugely from basing themselves in countries with sound infrastructure - which has to be paid for - and a large consumer base. Should businesses absent themselves from contributing towards these tax contributions? It puts more pressure on other business to pay their full whack.

Luxembourg benefits

In a terse statement sent to AOL Money, Amazon said "Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages, dispatching products to all 27 countries in the EU. We have a single European Headquarters in Luxembourg with hundreds of employees to manage this complex operation."

The reality is that Amazon's tax affairs are likely to be clever but still legal. It's up to HMRC whether it is prepared to tolerate the situation.

What would you prefer? More Amazon warehouse UK jobs - or a company that pays its way, fairly and squarely? At the moment the Goverment is making it clear it prefers the former.

Five biggest taxpayer stings
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Is Amazon UK a tax evader?

Most recently HM Revenue & Customs let Vodafone off the hook - for quite a sum. Vodafone paid out just £1.25 billion despite an original tax bill being closer to £8 billion (HMRC has always refused to reveal how much it thought the Vodafone final bill was). The episode was made even more shaming and painful because Vodafone was given several years to come good with the cash owed - even though it was sitting on a substantial cash pile at the time.

The Exchequer is estimated to have lost around £10 million to Goldman Sachs recently through an 'error' made by HMRC. The episode relates to an employee benefit trust run by Goldman allowing employees to take non-repayable loans that had no National Insurance contributions tied to them. HMRC did claw back the full amount from more than 20 businesses - but not Goldman. HMRC remains cagey about the details of the deal. Little HMRC accountability or transparency.

Huge problems with QinetiQ, the former Defence Evaluation and Research Agency, or DERA. A lack of clarity on contractual arrangements at the outset didn't help, allowing private equity company Carlyle to hammer the price down (why would you start negotiations when you didn't know the company's true value?). The Ministry of Defence behaved, it was said, like "an innocent at a table of card-sharps". Estimated cost to the taxpayer - £90 million. Huge sums were later made by QinetiQ management when the company listed.

The TaxPayers' Alliances estimates £2.7bn worth of taxpayer cash was wasted with a super-expensive 'National Programme for IT in the NHS'. The Department of Health, in the end, had very little to show for it as a consequence. Another example of poor management and a seemingly ingrained inability to provide taxpayers' with value for money.

"BT is paid £9 million to implement systems at each NHS site, even though the same systems have been purchased for under £2 million by NHS organisations outside the Programme", the Commons Public Accounts Committee noted.

Contentious. The Office for National Statistics estimated this has declined 3.4% since 1997, "with inputs increasing by 38%." The Centre for Economics and Business Research estimate that this inefficiency costs the taxpayer £58.4 billion a year.

Given the above record, are there any deals that the taxpayer has actually won out on? Not many, but the one successful project was the roll out of new Jobcentre Plus offices. It came in £314 million under budget, claims the Taxpayers' Alliance. A small cheer.


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