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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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.