Amazon and Tax

An argument I've heard recently is that if Amazon paid more tax, prices would have have to go up and we would all end up paying more for our CDs.

This is utter tosh.

Taxes are paid on profits. So let's take a working example and see it through...

Amazon get a CD in at £3.50 cost. They sell it for £5.00. They have a profit of £1.50 on that CD. It's a simplistic example, I grant you.

The interesting thing is what happens after the sale and the profit is earned. It's how Amazon decide to declare that profit. Or, do they pay that £1.50 in 'licence fees' to their U.S. HQ so that it's not registered in the UK?

In a perfect world, Amazon would pay corporation tax on that £1.50, which I believe is about 22%, or 33p. But thanks to the wizardry of the Amazon accounting team, that £1.50 is not declared as £1.50, or it's declared in Luxembourg where corporation tax is 3%, or it's set off against previous 'losses'. So it's about how Amazon declare their profits, not how they price their goods.

If they choose not to indulge in complicated tax affairs, they would pay the 33p for the CD. If they choose to complicate things, they may pay as little as 5p (or even less, who knows?). But that doesn't change the price of the CD to the consumer. The difference is in how Amazon decide to declare the profit. Or do they declare it as profit at all?

So Amazon pay tax on their 'profits'. Any company can follow Inland Revenue guidelines to minimize their 'profits' and so reduce their tax burden.

The issue is that companies like Amazon and Google, who are actually HQed in the U.S. and don't give a rat's piss about the economic welfare of the UK, are aggressively reducing their tax profile. This means that although they transact plentifully in the UK, apparently (according to the Inland Revenue) it's not worth their while.

And we ("the people", or David Cameron, if you want to be specific) claim this is immoral, despite the fact that it is not illegal. DC, the Prime Minister, the person in charge, thinks that "aggressive tax avoidance" is immoral, but is not changing the law to make it illegal.

Well, you work it out. Me, I think that the companies have a declared responsibility to their shareholders, and if they are not committing explicitly illegal acts, they're okay.

It's not nice, or pretty, or moral, but they aren't breaking the law.

If we want to change the situation, we need to change the law.

Posted via email from Rob Thorley's Posterous Site