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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Why the Liberal Democrats by-election surge is not all it seems

The Lib Dems chalked up impressive results in Stoke and Copeland. But just how much of a fight back is it?

By the now conventional post-Brexit logic, Stoke and Copeland ought to have been uniquely inhospitable for the Lib Dems. 

The party lost its deposit in both seats in 2015, and has no representation on either council. So too were the referendum odds stacked against it: in Stoke, the so-called Brexit capital of Britain, 70 per cent of voters backed Leave last June, as did 62 per cent in Copeland. And, as Stephen has written before, the Lib Dems’ mini-revival has so far been most pronounced in affluent, Conservative-leaning areas which swung for remain. 

So what explains the modest – but impressive – surges in their vote share in yesterday’s contests? In Stoke, where they finished fifth in 2015, the party won 9.8 per cent of the vote, up 5.7 percentage points. They also more than doubled their vote share in Copeland, where they beat Ukip for third with 7.3 per cent share of the vote.

The Brexit explanation is a tempting and not entirely invalid one. Each seat’s not insignificant pro-EU minority was more or less ignored by most of the national media, for whom the existence of remainers in what we’re now obliged to call “left-behind Britain” is often a nuance too far. With the Prime Minister Theresa May pushing for a hard Brexit and Labour leader Jeremy Corbyn waving it through, Lib Dem leader Tim Farron has made the pro-EU narrative his own. As was the case for Charles Kennedy in the Iraq War years, this confers upon the Lib Dems a status and platform they were denied as the junior partners in coalition. 

While their stance on Europe is slowly but surely helping the Lib Dems rebuild their pre-2015 demographic core - students, graduates and middle-class professionals employed in the public sector – last night’s results, particularly in Stoke, also give them reason for mild disappointment. 

In Stoke, campaign staffers privately predicted they might manage to beat Ukip for second or third place. The party ran a full campaign for the first time in several years, and canvassing returns suggested significant numbers of Labour voters, mainly public sector workers disenchanted with Corbyn’s stance on Europe, were set to vote Lib Dem. Nor were they intimidated by the Brexit factor: recent council by-elections in Sunderland and Rotheram, which both voted decisively to leave, saw the Lib Dems win seats for the first time on massive swings. 

So it could well be argued that their candidate, local cardiologist Zulfiqar Ali, ought to have done better. Staffordshire University’s campus, which Tim Farron visited as part of a voter registration drive, falls within the seat’s boundaries. Ali, unlike his Labour competitor Gareth Snell and Ukip leader Paul Nuttall, didn’t have his campaign derailed or disrupted by negative media attention. Unlike the Tory candidate Jack Brereton, he had the benefit of being older than 25. And, like 15 per cent of the electorate, he is of Kashmiri origin.  

In public and in private, Lib Dems say the fact that Stoke was a two-horse race between Labour and Ukip ultimately worked to their disadvantage. The prospect of Nuttall as their MP may well have been enough to convince a good number of the Labour waverers mentioned earlier to back Snell. 

With his party hovering at around 10 per cent in national polls, last night’s results give Farron cause for optimism – especially after their near-wipeout in 2015. But it’s easy to forget the bigger picture in all of this. The party have chalked up a string of impressive parliamentary by-election results – second in Witney, a spectacular win in Richmond Park, third in Sleaford and Copeland, and a strong fourth in Stoke. 

However, most of these results represent a reversion to, or indeed an underperformance compared to, the party’s pre-2015 norm. With the notable exception of Richmond’s Sarah Olney, who only joined the Lib Dems after the last general election, these candidates haven’t - or the Lib Dem vote - come from nowhere. Zulfiqar Ali previously sat on the council in Stoke and had fought the seat before, and Witney’s Liz Leffman and Sleaford’s Ross Pepper are both popular local councillors. And for all the excited commentary about Richmond, it was, of course, held by the Lib Dems for 13 years before Zac Goldsmith won it for the Tories in 2010. 

The EU referendum may have given the Lib Dems a new lease of life, but, as their #LibDemFightback trope suggests, they’re best understood as a revanchist, and not insurgent, force. Much has been said about Brexit realigning our politics, but, for now at least, the party’s new normal is looking quite a lot like the old one.