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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Lord Empey: Northern Ireland likely to be without government for a year

The former UUP leader says Gerry Adams is now in "complete control" of Sinn Fein and no longer wants to be "trapped" by the Good Friday Agreement

The death of Martin McGuinness has made a devolution settlement in Northern Ireland even more unlikely and has left Gerry Adams in "complete control" of Sinn Fein, the former Ulster Unionist leader Reg Empey has said.

In a wide-ranging interview with the New Statesman on the day of McGuinness’ death, the UUP peer claimed his absence would leave a vacuum that would allow Adams, the Sinn Fein president, to consolidate his hold over the party and dictate the trajectory of the crucial negotiations to come. Sinn Fein have since pulled out of power-sharing talks, leaving Northern Ireland facing the prospect of direct rule from Westminster or a third election in the space of a year. 

Empey, who led the UUP between and 2005 and 2010 and was briefly acting first minister in 2001, went on to suggest that, “as things stand”, Northern Ireland is unlikely to see a return to fully devolved government before the inquiry into the Renewable Heat Incentive scheme is complete -  a process which could take up to a year to complete.

“Adams is now in complete control of Sinn Fein,” he said, adding that it remained unclear whether McGuinness’ successor Michelle O’Neill would be “allowed to plough an independent furrow”. “He has no equal within the organisation. He is in total command of Sinn Fein, and that is the way it is. I think he’s even more powerful today than he was before Martin died – by virtue of there just being nobody there.”

Asked what impact the passing of McGuinness, the former deputy first minister and leader of Sinn Fein in the north, would have on the chances of a devolution settlement, Empey, a member of the UUP’s Good Friday Agreement negotiating delegation, said: “I don’t think it’ll be positive – because, for all his faults, Martin was committed to making the institutions work. I don’t think Gerry Adams is as committed.

Empey added that he believed Adams did not want to work within the constitutional framework of the Good Friday Agreement. In a rebuke to nationalist claims that neither Northern Ireland secretary James Brokenshire nor Theresa May can act as honest or neutral brokers in power-sharing negotiations given their reliance on the DUP’s eight MPs, he said: “They’re not neutral. And they’re not supposed to be neutral.

“I don’t expect a prime minister or a secretary of state to be neutral. Brokenshire isn’t sitting wearing a hat with ostrich feathers – he’s not a governor, he’s a party politician who believes in the union. The language Sinn Fein uses makes it sound like they’re running a UN mandate... Gerry can go and shout at the British government all he likes. He doesn’t want to be trapped in the constitutional framework of the Belfast Agreement. He wants to move the debate outside those parameters, and he sees Brexit as a chance to mobilise opinion in the republic, and to be seen standing up for Irish interests.”

Empey went on to suggest that Adams, who he suggested exerted a “disruptive” influence on power-sharing talks, “might very well say” Sinn Fein were “’[taking a hard line] for Martin’s memory’” and added that he had been “hypocritical” in his approach.

“He’ll use all of that,” he said. “Republicans have always used people’s deaths to move the cause forward. The hunger strikers are the obvious example. They were effectively sacrificed to build up the base and energise people. But he still has to come to terms with the rest of us.”

Empey’s frank assessment of Sinn Fein’s likely approach to negotiations will cast yet more doubt on the prospect that devolved government might be salvaged before Monday’s deadline. Though he admitted Adams had demanded nothing unionists “should die in a ditch for”, he suggested neither party was likely to cede ground. “If Sinn Fein were to back down they would get hammered,” he said. “If Foster backs down the DUP would get hammered. So I think we’ve got ourselves a catch 22: they’ve both painted themselves into their respective corners.”

In addition, Empey accused DUP leader Arlene Foster of squandering the “dream scenario” unionist parties won at last year’s assembly election with a “disastrous” campaign, but added he did not believe she would resign despite repeated Sinn Fein demands for her to do so.

 “It’s very difficult to see how she’s turned that from being at the top of Mount Everest to being under five miles of water – because that’s where she is,” he said. “She no longer controls the institutions. Martin McGuinness effectively wrote her resignation letter for her. And it’s very difficult to see a way forward. The idea that she could stand down as first minister candidate and stay on as party leader is one option. But she could’ve done that for a few weeks before Christmas and we wouldn’t be here! She’s basically taken unionism from the top to the bottom – in less than a year”.

Though Foster has expressed regret over the tone of the DUP’s much-criticised election campaign and has been widely praised for her decision to attend Martin McGuinness’ funeral yesterday, she remains unlikely to step down, despite coded invitations for her to do so from several members of her own party.

The historically poor result for unionism she oversaw has led to calls from leading loyalists for the DUP and UUP – who lost 10 and eight seats respectively – to pursue a merger or electoral alliance, which Empey dismissed outright.

“The idea that you can weld all unionists together into a solid mass under a single leadership – I would struggle to see how that would actually work in practice. Can you cooperate at a certain level? I don’t doubt that that’s possible, especially with seats here. Trying to amalgamate everybody? I remain to be convinced that that should be the case.”

Accusing the DUP of having “led unionism into a valley”, and of “lashing out”, he added: “They’ll never absorb all of our votes. They can try as hard as they like, but they’d end up with fewer than they have now.”

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.