Amazon's tax avoidance can only be solved at EU level

Little-Britainism won't help us here.

The revelation in The Guardian last week that Amazon pays no UK corporation tax has prompted much anguish. How can a company that is the UK's largest online retailer with annual sales in the UK of £3.3bn get away with this? Tim Waterstone, founder of the high street book store chain, weighed in with a column in the same paper bemoaning Amazon's "contemptuous, arrogant and subversive" approach.

Despite all the attention on Amazon's behaviour, few solutions to the Amazon problem have been proposed. It's not as if the multinational is going to easily be shamed into paying more tax, and as Waterstone admits, Amazon is acting within the letter of the law.

The solution is instead to look at how tax systems work within the European Union and – shock horror – solve these issues at EU level.

There is a general consensus in the United Kingdom that being part of the EU's single market is a good thing. It allows a UK bookseller to ship its products to Luxembourg, and a Luxembourg bookseller to ship to the UK. There are no cumbersome tariffs or customs procedures involved in doing this. As consumers we win. Yet as taxpayers we increasingly lose.

The first problem is with Value Added Tax (VAT). Paper books have zero-rate VAT in the UK, while e-books are defined as electronic products and are subject to VAT at 20 per cent. Luxembourg, following the lead of France, has reduced VAT on e-books to three per cent. So Kindle e-books sold by the Luxembourg-headquartered Amazon EU Sarl, have a 17 per cent price advantage over the same publication sold by a UK-based e-book seller, even when bought by a customer residing in the UK.

In 2015 the EU VAT rules are due to change, meaning the country of residence of the purchaser will determine the VAT rate, but in the fast-paced technology sector the next three years are going to be crucial - how many UK-based booksellers are going to even be left by 2015?

The second problem is with corporation tax, both the rate of corporation tax and how you define the profits on which it is levied. Ireland's low 12.5 per cent corporation tax rate is one of the reasons both Google and Apple have their EU headquarters there. However Luxembourg is not an especially low corporation tax regime – its headline rate of 28.59 per cent is higher than the UK's rates. The attraction of Luxembourg for Amazon is instead that the costs that can be offset against income are defined differently. This allows for Amazon to have a lower taxable income if based in Luxembourg rather than in the UK.

The European Commission has realised that this is a problem for more than a decade, having repeatedly attempted to work towards a common consolidated corporate tax base (CCCTB), yet so far to no avail. The idea is that the definition of profits eligible to be taxed in all EU countries would be the same, yet the actual corporation tax rate would continue to vary.

Tax matters at EU level require the unanimous agreement of all EU member states and the UK and Ireland, among others, have refused to be drawn on the corporation tax issue - neither the tax base nor corporation tax rates. British chancellors (both Labour and Conservative) have repeatedly stuck to the line that taxation is a matter of national sovereignty and that further EU-wide rules on corporation tax are unwelcome. Yet as as the Amazon case shows, sticking to a resolutely national position on taxation becomes less and less tenable in a globalised market where electronic as well as physical goods are increasingly traded across borders. 

Perhaps if you are George Osborne and you believe in a destructive race-to-the-bottom on tax rates all of this might be desirable, but it is high time that Labour revisited this issue in opposition. The only alternative to tax competition is tax harmonisation. An EU-wide agreement on the definition of an e-book for VAT purposes, and a commitment to a common consolidated corporate tax base are the very least Ed Balls should be demanding.

An Amazon employee walks the corridors of their warehouse. Credit: Getty

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PMQs review: Theresa May shows again that Brexit means hard Brexit

The Prime Minister's promise of "an end to free movement" is incompatible with single market membership. 

Theresa May, it is commonly said, has told us nothing about Brexit. At today's PMQs, Jeremy Corbyn ran with this line, demanding that May offer "some clarity". In response, as she has before, May stated what has become her defining aim: "an end to free movement". This vow makes a "hard Brexit" (or "chaotic Brexit" as Corbyn called it) all but inevitable. The EU regards the "four freedoms" (goods, capital, services and people) as indivisible and will not grant the UK an exemption. The risk of empowering eurosceptics elsewhere is too great. Only at the cost of leaving the single market will the UK regain control of immigration.

May sought to open up a dividing line by declaring that "the Labour Party wants to continue with free movement" (it has refused to rule out its continuation). "I want to deliver on the will of the British people, he is trying to frustrate the British people," she said. The problem is determining what the people's will is. Though polls show voters want control of free movement, they also show they want to maintain single market membership. It is not only Boris Johnson who is pro-having cake and pro-eating it. 

Corbyn later revealed that he had been "consulting the great philosophers" as to the meaning of Brexit (a possible explanation for the non-mention of Heathrow, Zac Goldsmith's resignation and May's Goldman Sachs speech). "All I can come up with is Baldrick, who says our cunning plan is to have no plan," he quipped. Without missing a beat, May replied: "I'm interested that [he] chose Baldrick, of course the actor playing Baldrick was a member of the Labour Party, as I recall." (Tony Robinson, a Corbyn critic ("crap leader"), later tweeted that he still is one). "We're going to deliver the best possible deal in goods and services and we're going to deliver an end to free movement," May continued. The problem for her is that the latter aim means that the "best possible deal" may be a long way from the best. 

George Eaton is political editor of the New Statesman.