May 26, 2015
Amazon has stopped exploiting loopholes, started paying increased taxes in the U.K., Germany, Italy, and Spain
by Mark Krotov & Alex Shephard
Last year, we reported on Amazon UK’s Christopher North, who defended—with great vigor—his employer’s decision to funnel its sales through Luxembourg—and thus avoid paying anything close to the tax rate the company should have paid. (We recently referred to Luxembourg as “The Delaware of Europe,” which should give you a sense of that nation’s attitude toward taxes.) Here’s what North told the Guardian:
“I would defy anybody to find a way to have 120m products available to UK customers if they only did that from a single UK team, sourcing products from the UK, with only warehouses in the UK. We just couldn’t do that. And a single European business is going to need a single European headquarters.”
This explanation was . . . unconvincing. The controversy over the gap in tax rates was never about sourcing or warehousing—it was about the billions of pounds of sales made in the UK that were remaining untaxed.
But on Friday, the Guardian revealed that Amazon had dramatically overruled its executive’s strong proclamations:
From the start of this month the online retailer has started booking its sales through the UK, meaning resulting profits will be taxed by HMRC. The group made $8.3bn (£5.3bn) of worldwide sales from British online shoppers but for 11 years all these internet transactions have been booked in Luxembourg.
A spokesman said Amazon was “now recording retail sales made to customers in the UK through the UK branch. Previously, these sales were recorded in Luxembourg”.
This weekend, the New York Times reported that it wasn’t just the company’s British operation that was affected by these changes:
On May 1, Amazon said that it had started reporting revenue from its operations in Britain, Germany, Italy and Spain. By altering how it reports its revenue, the online retailer may become liable for larger tax charges in certain nations, though it may still be able to reduce its tax burden through other complex accounting practices.
The change in tax practices came to light only recently, however—one possible explanation is that the release was timed to coincide with the Memorial Day holiday in the U.S. and the Spring Bank Holiday in the U.K.
This is an incredible development, and a somewhat unexpected one—Amazon has gone to great lengths to avoid paying and collecting taxes for the entirety of its existence. In Britain, it could be seen as a victory for bookstores, who have mounted a sustained campaign to get the retailer to pay its fair share since 2012.
The move, however, does not seem to be in response to growing populist pressure. A number of outlets are reporting that the decision was made in response to the so-called “Google Tax,” which was put forward by George Osborne when he was Chancellor of the Exchequer. (Osborne, a conservative, is currently Secretary of State.)
Osborne designed the “Google Tax” to crack down on multinational companies like Google and Amazon who do business in the U.K., but channel their profits through countries like Luxembourg. In Amazon’s case, when a customer made a purchase on Amazon.co.uk, the purchase is technically made from Amazon Europe Holding Technologies, which is based in Luxembourg, and “fulfilled” by a warehouse in the U.K.. Exploiting this technicality saved the company millions in Europe. In 2012, for instance, Amazon made €6.8bn in Germany, but paid only €3m in tax. (Google uses a similar loophole known as the “Double Irish,” in which a company registers in Ireland, which has lower corporate taxes than the rest of the U.K., and funnels its money through a separate, offshore company located in a different country (in Google’s case, Bermuda), but also registered in Dublin.)
Companies that were found to have dodged tax in the U.K. would be hit with the 25 percent “Google Tax.” The tax took effect in April, which helps explain the timing of Amazon’s announcement—facing increased scrutiny, the company decided to stop exploiting loopholes and start paying U.K. taxes.
The “Google Tax” wasn’t the only catalyst, however. In January, the E.U. released a preliminary report suggesting that Amazon’s tax deal with Luxembourg was not “properly scrutinized” when it was first made and that it may have given the company an unfair advantage in the European Union. That increased scrutiny helps explain why Amazon changed its tax practices across the E.U., instead of simply changing them in Britain while maintaining a steady, tax-avoiding course in the other countries in which it does major business. Whether that will keep E.U. regulators at bay remains to be seen.
There’s another, strange wrinkle in this story, however. Last week, North, Amazon’s managing director in the U.K., and Rob McWilliam, its finance director, resigned from the board of Amazon.co.uk. North and McWilliam were the country’s top two U.K. executives. According to the Guardian, both will stay with the company, though in somewhat diminished capacities:
A spokesman for the company said: “We regularly review our business structure to ensure that we are able to best serve our customers and to pursue future growth opportunities. Christopher North remains the country manager and head of Amazon in the UK.”
McWilliam is also thought to remain a senior figure in UK operations, though his LinkedIn profile gives a new title of “vice president, consumables”.
The Guardian suggests that these personnel changes were made in the context of the “Google Tax,” and the company’s evolving tax strategy, but does not provide an explanation as to why they were made.
One doesn’t need an explanation to recognize that Amazon is undergoing massive changes in Europe—it will begin paying greater taxes in European Union countries and its leadership in the U.K. will look slightly different. The U.K., Germany, Spain, and Italy should all see tax revenues climb at a time when they are badly needed. Of course, company’s like Amazon and Google are adept at exploiting tax loopholes wherever they’re forced to pay taxes, and they’re as good at lobbying lawmakers to create advantageous tax structures—and advantageous loopholes. It seems unlikely that this fight is over, but that doesn’t change the fact that this is a victory for those who have advocated for strict laws ensuring that multinational corporations pay their share in local taxes.