Amazon shifts up to £8.2bn of UK revenues to low-tax Luxembourg, report finds

Exclusive: Governments are subsidising the growth of a monopoly by allowing ecommerce giant to legally report billions of pounds of sales in a tax haven, argues report commissioned by Unite union

Ben Chapman
Tuesday 10 August 2021 20:02
<p>The company is facing calls for a public inquiry into its tax arrangements</p>

The company is facing calls for a public inquiry into its tax arrangements

Amazon is facing calls for a public inquiry into its tax arrangements after a report found that the tech giant had reported up to £8.2bn of its UK sales in Luxembourg.

A comprehensive analysis of the ecommerce giant’s accounts and public statements found that in its US accounts, Amazon had declared £13.7bn of UK sales in 2019. However, in filings for its UK-based companies, Amazon had only reported £5.5bn in sales.

Labour MP and Treasury committee member Emma Hardy backed the Unite union’s proposal for a probe into the “missing” billions.

Amazon strongly rejected the findings and said the discrepancy was because most of its sales to UK shoppers were booked by UK branches of one of its Luxembourg companies, and that the figures were reported to HMRC. It declined to state how much UK corporation tax it paid on those sales.

The report, commissioned by Unite, found that Amazon had reported €57bn of revenue in Luxembourg in 2019. If the amount had related to sales made in Luxembourg, it would mean Amazon had sold an average of €92,000 of goods and services to every resident of the tiny Grand Duchy.

Amazon is not required to publicly disclose where sales were actually made. Campaigners say this allows Amazon and other tech giants to gain an advantage over competitors and cement their dominance.

That dominance has grown rapidly during the pandemic as people have become increasingly reliant on technology. The power of that shift was underlined last month when Amazon reported more than $100bn of global sales in the previous three months alone. Microsoft, Apple and Google all posted soaring sales, throwing the spotlight again on big tech’s ever-expanding power.

Unite’s report, shared exclusively with The Independent, argues that the advantage Amazon gains through legally shifting profits to tax havens is a key factor in the company’s growing dominance.

Researchers led by chartered accountant Vivek Kotecha looked at accounts for 19 of Amazon’s UK-registered companies, from its warehouses and logistics operation to smaller businesses such as the Internet Movie Database (IMDb).

From the information Amazon publicly discloses, they attempted to deduce how much UK tax the company may be avoiding.

Based on Amazon’s public statements, researchers estimated that the company had paid a maximum of £84m in tax on its profits, around £46m less than would have been expected.

The figures suggest that Amazon could pay its corporation tax charge from the profit made in only a few days of trading.

Amazon dismissed the estimates as “wildly inaccurate”. A spokesperson said: “Our UK retail and Amazon Web Services revenues are recorded here in the UK and reported directly to HMRC. Our total tax contribution in the UK was £1.1bn during 2019 – £293m in direct taxes and £854m in indirect taxes.”

While sales are legally recorded here through local branches of the Luxembourg companies, they are ultimately attributed to Amazon parent companies based in Luxembourg, where the company pays tax on its European profits.

Indirect taxes include VAT, which companies collect on behalf of the government, and employee taxes which, a number of studies have found, are ultimately “paid” by employees in the form of lower wages.

Sharon Graham, who is leading Unite’s campaign against Amazon’s efforts to stop its workers from unionising, said the company’s tax avoidance went “hand in hand” with its anti-union stance.

“Our call for a public inquiry is a demand for transparency and social responsibility. That means opening the books and giving workers the freedom to form a union without fear,” Ms Graham said.

Labour MP and Treasury Committee member Emma Hardy described the findings as “very worrying” and backed Unite’s call for a public inquiry into Amazon’s “missing money”.

“I don’t want a tax system that takes money from ordinary people to subsidise the growth of the world’s biggest anti-union company,” Ms Hardy said.

How does £8.2bn go ‘missing’?

The report provides some of the most detailed insight yet into how Amazon is able to shift revenues seamlessly from where it does business to where it chooses to pay tax.

When a shopper buys a product on Amazon’s UK website, they are billed by the UK branch of a Luxembourg-registered company called Amazon EU Sarl.

It had just 4,302 staff in 2019, yet recorded annual revenues of €32.2bn, meaning an average of €7.5m for each employee.

In the UK, Amazon’s three main subsidiaries reported €207,000 of revenues per employee. The figures suggest that Amazon’s Luxembourg-based staff are 36 times more productive than their UK colleagues.

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Atul K Shah, professor of accounting and finance at City University, said the detailed report provided a “long overdue A to Z of Amazon’s UK tax avoidance”.

“The millions of euros of ‘sales’ per employee in Amazon’s Luxembourg-based companies is a red flag for tax avoidance, and it emphasises the need for greater transparency on a country-by-country level,” Professor Shah said.

As well as booking sales in Luxembourg, Amazon’s accounts indicate that it uses another method to reduce its UK tax bill.

One Luxembourg-based subsidiary, Amazon Services Europe Sarl, provides services to the company’s websites. Other Amazon companies in the UK and elsewhere then pay the Luxembourg entity for these services, shifting revenue into the low-tax country.

Amazon Services Europe Sarl’s 2019 accounts show it generated €12bn in revenue and had just 193 staff – representing more than €62m per employee.

John Christensen, director and chair of the board of the Tax Justice Network, said Amazon’s complex corporate structure is indicative of how “misaligned international tax systems have become in recent decades”.

“The tax systems ask for the least from those companies and individuals with the most, whilst the public are left to bear the brunt of austerity-driven service cuts,” he said.

Unite said that governments are handing Amazon an advantage over local competitors and are effectively subsidising its apparent push for dominance.

“The key question that emerges from this analysis is whether we want a tax system that, at present, subsidises lower prices now in exchange for greater market dominance in future”, the report states. “The history of monopolies suggests that this is a dangerous bargain.”

Mr Christensen expressed similar concerns. “Put in the perspective of Amazon’s increasing market dominance, my view is that the system for taxing multinational companies is enabling the growth of new monopolies, which harms the quality of markets across the world,” he said.

Nicholas Shaxson, co-founder of the Balanced Economy Project, which campaigns for economic justice, said that monopolies and tax havens “go together” because they “involve a mindset of antisocial behaviour”.

“Monopolies generate huge profits, and tax havens hide evidence and cut the tax bills on those profits.

“Amazon’s shenanigans in Luxembourg are a classic [example] of how our markets and tax systems have become corrupted.”

To reduce tax avoidance, the report proposes that multinationals should publish country-by-country accounts that clearly show all of their activity and the tax they pay in each market.

Governments in 38 wealthy nations already collect this data from multinationals, but only the aggregate figures are published. These confirm that billions of pounds of profits are shifted each year, but no individual tax-avoiding companies are “named and shamed”.

Momentum is building for reform, with the G7 recently agreeing a historic deal for a global minimum corporate tax rate of at least 15 per cent, which would diminish the incentive for tax avoidance.

A second part of the proposed rules would mean that at least 20 per cent of large multinational companys’ global profits are reallocated to countries that they operate in, and taxed there at local corporation tax rates.

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