Amazon pays no UK corporation tax

The company attributes nearly all its income to its Luxembourg branch.

The Guardian has a major story today on the tax affairs of Amazon UK. The online retailer, Britain's biggest, pays no corporation tax in the UK, despite having between £2bn and £3bn sales here in 2010. The company avoids paying anything by registering the vast majority of its turnover in its Luxembourg office, which reported income of €7.5bn in 2010, despite having just 134 employees. The British office, which employed 2,265 people, reported a turnover of £147m.

The paper explains:

The UK operation avoids tax as the ownership of the main Amazon.co.uk business was transferred to a Luxembourg company in 2006. The UK business is now owned by Amazon EU Sarl and the UK operation is classed only as an "order fulfilment" business. All payments for books, DVDs and other goods go directly to Luxembourg. The UK business is simply a delivery organisation.

This arrangement saves them millions in tax:

At first glance, the corporation tax rates in Luxembourg and the UK are similar, but the Luxembourg authorities have a different view of costs that can be offset against income, which reduces taxable profit. So Amazon EU Sarl's €7.5bn of income in 2010 was almost entirely offset by €7.4bn of charges, enabling it to disclose a tax charge of just €5.5m. The charges are defined by the company as the "cost of product sales and other ongoing costs related to the operations of the company"…

This is in stark contrast to the performance of the UK fulfilment business which filed its 2011 accounts last month. For the first time since 2006, Amazon.co.uk Limited posted an after-tax profit of £1.2m, much better than the £3m after-tax loss reported a year earlier. The accounts show its turnover was £208m, a big improvement on the £147m recorded in 2010 but dwarfed by the £3.3bn of UK sales passed to Luxembourg.

The company still pays a fair amount of UK tax, because VAT is charged based on the location of the recipient, not the business. But a significant proportion of Amazon's sales are books, which are zero-rated for VAT; they also don't have to pay British sales tax on downloads, instead paying Luxembourgish rates. For ebooks, this is 3 per cent, rather than the 20 per cent they would be paying in the UK. Until last Sunday, the company also managed to not pay VAT on almost every sale under £18. It used a loophole, originally designed to protect flower sales, which allowed low-cost goods to be imported from the Channel Islands VAT-free.

Richard Murphy, the tax campaigning accountant, suggested how a revised tax code could more accurately assess the company's holdings:

First split the profit in three. One third is then allocated between the UK and Luxembourg based on where the sales really are. Well, all these sales are to UK customers so that ratio is 100% to the UK and 0% to Luxembourg. So that £125 divided by three = £41.66 million of profit allocated to the UK.

Then we split the next third on the basis of where the people are. That’s 2,265 here and 10 in Luxembourg. £41.66 million x 2,265/2,275 = £41.5 million to the UK and £166,000 to Luxembourg.

And then let’s do assets – admittedly the one I have had to guess. The guess is £100 million here and £5 million in Luxembourg so that is £41.66 million x 100/105 = £39.7 million of profit here and £1.96 million to Luxembourg.

Add it up and near enough £122.8 million of profit would be in the UK and £2.2 in Luxembourg. Instinctively that feels right of course - because that is exactly how the economics really are. Glaringly obviously, as Amazon’s accounts admit, the market is here in the UK, not in Luxembourg. But the game of abuse that is being played means that almost all the profit goes to Luxembourg on this one – and almost none to us.

Implementing such a change would be a massive undertaking, though, as well as being difficult to get through EU law. For now, the news is likely to remain just bad PR for Amazon.

The Amazon warehouse in Swansea, in the run-up to Christmas. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The Tory-DUP deal has left Scotland and Wales seething

It is quite something to threaten the Northern Irish peace process and set the various nations of the UK at loggerheads with merely one act.

Politics in the UK is rarely quite this crude, or this blatant. The deal agreed between the Conservatives and Northern Ireland's Democratic Unionist Party has – finally – been delivered. But both the deal and much of the opposition to it come with barely even the pretence of principled behaviour.

The Conservatives are looking to shore up their parliamentary and broader political position after a nightmare month. The DUP deal gives the Tories some parliamentary security, and some political breathing space. It is not yet clear what they as a party will do with this – whether, for instance, there will be an attempt to seek new leadership for the party now that the immediate parliamentary position has been secured.

But while some stability has been achieved, the deal does not provide the Tories with much additional strength. Indeed, the DUP deal emphasises their weakness. To finalise the agreement the government has had to throw money at Northern Ireland and align with a deeply socially conservative political force. At a stroke, the last of what remained of the entire Cameron project – the Conservative’s rebuilt reputation as the better party for the economy and fiscal stability, and their development as a much more socially inclusive and liberal party – has been thrown overboard.

Read more: Theresa May's magic money tree is growing in Northern Ireland

For the DUP, the reasoning behind the deal is as obvious as it is for the Conservatives. The DUP has maximised the leverage that the parliamentary arithmetic gives it. As a socially conservative and unionist party, it has absolutely no wish to see Jeremy Corbyn in Downing Street. But it has kept the Conservatives waiting, and used the current position to get as good a deal as possible. Why should we expect it to do anything else? Still, it is hardly seemly for votes to be bought quite so blatantly.

The politics behind much of the criticism of the deal has been equally obvious. Welsh First Minister Carwyn Jones – representing not only the Labour party, but also a nation whose relative needs are at least as great as those of the six counties – abandoned his normally restrained tone to describe the deal as a "bung" for Northern Ireland. Scotland’s First Minister Nicola Sturgeon was also sharply critical of the deal’s lack of concern for financial fairness across the UK. In doing so, she rather blithely ignored the fact that the Barnett Formula, out of which Scotland has long done rather well, never had much to do with fairness anyway. But we could hardly expect the Scottish National Party First Minister to do anything but criticise both the Conservatives and the current functioning of the UK.

Beyond the depressingly predictable short-term politics, the long-term consequences of the Tory-DUP deal are much less foreseeable. It is quite something to threaten the integrity of the Northern Irish peace process and set the various nations of the UK at loggerheads with merely one act. Perhaps everything will work out OK. But it is concerning that, for the current government, short-term political survival appears all-important, even at potential cost to the long-term stability and integrity of the state.

But one thing is clear. The political unity of the UK is breaking down. British party politics is in retreat, possibly even existential decay. This not to say that political parties as a whole are in decline. But the political ties that bind across the UK are.

The DUP deal comes after the second general election in a row where four different parties have come first in the four nations of the UK, something which had never happened before 2015. But perhaps even more significantly, the 2017 election was one where the campaigns across the four nations were perhaps less connected than ever before.

Of course, Northern Ireland’s party and electoral politics have long been largely separate from those on the mainland. But Ulster Unionist MPs long took the Tory whip at Westminster. Even after that practice ceased in the 1970s, some vestigial links between the parties remained, while there were also loose ties between the Social Democratic and Labour Party and Labour. But in 2017, both these Northern Irish parties had their last Commons representation eliminated.

In Scotland, 2017 saw the SNP lose some ground; the main unionist parties are, it seems, back in the game. But even to stage their partial comeback, the unionist parties had to fight – albeit with some success – on the SNP’s turf, focusing the general election campaign in Scotland heavily around the issue of a potential second independence referendum.

Even in Wales, Labour’s 26th successive general election victory was achieved in a very different way to the previous 25. The party campaigned almost exclusively as Welsh Labour. The main face and voice of the campaign was Carwyn Jones, with Jeremy Corbyn almost invisible in official campaign materials. Immediately post-election, Conservatives responded to their failure by calling for the creation of a clear Welsh Conservative leader.

Read more: Did Carwyn Jones win Wales for Labour  - or Jeremy Corbyn?

Yet these four increasingly separate political arenas still exist within one state. The UK was always an odd entity: what James Mitchell astutely termed a "state of unions", with the minority nations grafted on in distinct and even contradictory ways to the English core. The politics of the four nations are drifting apart, yet circumstances will still sometimes mean that they have to intersect. In the current instance, the parliamentary arithmetic means the Tories having to work with a party that celebrates a form of "Britishness" viewed increasingly with baffled incomprehension, if not outright revulsion, by the majority of Conservatives, even, on the British mainland. In turn, the Tories and other parties, as well as the news-media, are having to deal with sudden relevance of a party whose concerns and traditions they understand very little of.

Expect more of this incomprehension, not less, in the post-2017 general election world. 

Roger Scully is Professor of Political Science in the Wales Governance Centre at Cardiff University.

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