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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Amber Rudd's report on the benefits of EU immigration is better late than never

The study will strengthen the case for a liberal post-Brexit immigration system. 

More than a year after vowing to restrict EU immigration, the government has belatedly decided to investigate whether that's a good idea. Home Secretary Amber Rudd has asked the independent Migration Advisory Committee to report on the costs and benefits of free movement to the British economy.

The study won't conclude until September 2018 - just six months before the current Brexit deadline and after the publication of the government's immigration white paper. But in this instance, late is better than never. If the report reflects previous studies it will show that EU migration has been an unambiguous economic benefit. Immigrants pay far more in tax than they claim in benefits and sectors such as agriculture, retail and social care depend on a steady flow of newcomers. 

Amber Rudd has today promised businesses and EU nationals that there will be no "cliff edge" when the UK leaves the EU, while immigration minister Brandon Lewis has seemingly contradicted her by baldly stating: "freedom of movement ends in the spring of 2019". The difference, it appears, is explained by whether one is referring to "Free Movement" (the official right Britain enjoys as an EU member) or merely "free movement" (allowing EU migrants to enter the newly sovereign UK). 

More important than such semantics is whether Britain's future immigration system is liberal or protectionist. In recent months, cabinet ministers have been forced to acknowledge an inconvenient truth: Britain needs immigrants. Those who boasted during the referendum of their desire to reduce the number of newcomers have been forced to qualify their remarks. Brexit Secretary David Davis, for instance, recently conceded that immigration woud not invariably fall after the UK leaves the EU. "I cannot imagine that the policy will be anything other than that which is in the national interest, which means that from time to time we’ll need more, from time to time we’ll need less migrants." 

In this regard, it's striking that Brandon Lewis could not promise that the "tens of thousands" net migration target would be met by the end of this parliament (2022) and that Rudd's FT article didn't even reference it. As George Osborne helpfully observed earlier this year, no senior cabinet minister (including Rudd) supports the policy. When May departs, whether this year or in 2019, she will likely take the net migration target with her. 

In the meantime, even before the end of free movement, net migration has already fallen to its lowest level since 2014 (248,000), while EU citizens are emigrating at the fastest rate for six years (117,000 left in 2016). The pound’s depreciation (which makes British wages less competitive), the spectre of Brexit and a rise in hate crimes and xenophobia are among the main deterrents. If the report does its job, it will show why the UK can't afford for that trend to continue. 

George Eaton is political editor of the New Statesman.