In whose books?

Jonathan Derbyshire and Alex Hern examine the power of multinationals.

Amazon: the internet retailing behemoth. Photograph: Getty Images

“[They] are not pleasant people to do business with,” an anonymous senior publishing exe - cutive is quoted as saying recently. He was talking about Amazon, the internet retailing behemoth that squats over the British book trade like Larkin’s toad, and that James Daunt, the managing director of the high-street chain Waterstones, described last year as a “ruthless, money-making devil”. Booksellers and publishers alike have reason to curse the bloated brainchild of Jeff Bezos.

In an interview he gave to the Financial Times in December last year, Daunt railed against something he called the “Luxembourg problem”. “I find it peculiar,” he said, “that the government taxes us on the high street heavily through the business rate when our major competitor, which is obviously the internet, is not taxed at all and in fact runs itself in an aggressively tax-efficient manner.”

Daunt was referring to Amazon’s decision, in 2006, to domicile its UK business in Luxembourg for tax reasons, a move that, according to an investigation by the Bookseller magazine, may have saved the business as much as £20m in cash. Naturally, Amazon is not the only large company to engage in creative “tax-planning”. The activities of campaigning groups such as UK Uncut and the Tax Justice Network have thrown much-needed light on the financial machinations of (among others) Vodafone, Fortnum & Mason, Boots, Barclays and, most recently, Starbucks.

This month it was revealed that the coffee chain had paid no corporation tax in Britain for three years, a period during which Starbucks reported no profit, and thus no taxable income, on sales of £1.2bn. Unlike Amazon, it pays business rates on its premises in this country, though the fact remains that it has,
like several other multinationals operating in the UK, been practising tax avoidance on an extravagant scale.

Meanwhile, the “Luxembourg problem” has just got worse with the news that Amazon has been taking advantage of the reduction from January this year of VAT levied on ebooks in the Grand Duchy, down from 15 per cent to just 3 per cent. In negotiations with British publishers, Amazon continues to set the sales price of ebooks for its Kindle e-reader to account for the UK VAT rate of 20 per cent, but it is required to pass only 3 per cent of that price on to the government of Luxembourg.

When the Luxemburgish authorities first mooted the cut in VAT on ebooks before Christmas 2011, Daunt declared that he “would prefer VAT to be lower or zero-rated for ebooks” but believed “it is wrong to exploit loopholes such as this”. He was no doubt being sincere when he said that, but his misgivings about the way Amazon arranges its tax affairs didn’t stop him signing a deal with the “money-making devil” in May that led to Kindles being sold in branches of Waterstones, with wifi enabling customers to download ebooks in-store, rather than buying physical volumes made of cloth,
paper and glue.

Daunt’s capitulation – which was certainly how others in the book trade saw Waterstones’s Faustian bargain – is a reminder of just how much unaccountable power over the British economy multinational giants such as Amazon have been able to accumulate.

Sometimes Amazon uses this power to coerce publishers into accepting terms to which they wouldn’t dream of agreeing if they were negotiating on a more even footing. On other occasions, the company disregards its “partners” altogether. Last November, for instance, it launched the Kindle Owners Lending Library, a service that allows any US customer with a Kindle and an Amazon Prime account access to unlimited free books. (The service is due to be launched soon in the UK.) For some of the books in the deal, Amazon negotiated a licence with the publishers in advance but, for some others, it gave them away without warning and paid the publishers a wholesale fee for every copy borrowed. Some publishers weren’t happy about their work being devalued in this way. Amazon didn’t seem to care.

What is the solution? Many will call, with justification, for the law to be changed to make corporate tax avoidance harder. However, publishers and booksellers may want to look across the Atlantic before they demand that Amazon’s Luxembourg loophole be closed.

Recently, booksellers and publishers lobbied legislators in a number of states to change the law so as to require Amazon to pay sales tax regardless of the location of its offices. This move appeared to offer some protection to smaller, physical retailers. Instead, Amazon simply opened more distribution centres, establishing huge facilities in New Jersey, Virginia, Texas, Tennessee and two in California, near Los Angeles and in the Bay Area. The result is that people living in major urban areas of the United States can now expect to receive their purchases within a few hours of hitting the “Buy” button – which will make life for other booksellers harder, not easier.

The chastening lesson for the book trade in this country is that they should be careful what they wish for. The might of a giant such as Amazon is not easily thwarted.