Friday, 12 September 2014

I doubt whether this will shut them up, but hey.

As we know, Amazon is under constant political attack from both sides:

1. The lefties complain that Amazon is not paying enough VAT or corporation tax.

Under current rules, Amazon's £4.2bn annual sales in the UK, which rely on a network of eight mega-warehouses across Britain, are routed through Luxembourg. Revenue & Customs has no taxing rights over any profits from those sales.

If they route their sales through Luxembourg, so what? They just pay VAT in Luxembourg instead (at 15%). It was the UK government's decision to increase VAT from 15% to 17.5% to 20% a few years ago; they decided that they'd get more tax from businesses who can't relocate that lose in tax from those which can. That's the Laffer Curve for you.

Also, by and large, the remaining profits are still very much liable to corporation tax in the UK (or else why would Amazon be paying any UK corporation tax at all?). Amazon does not appear to make much in the way of profits, so far their strategy is all about 'grabbing market share', that's why their bill is so low.

2. The rent-seekers complain that Amazon is not paying enough in Business Rates:

Sainsbury's chief executive Justin King has attacked the government for creating an unfair burden on high-street retailers by not doing more to tax online-only rivals such as Amazon.

He called for a level playing field and said politicians should take action or risk seeing the high street shrink further. King said: "The burden of taxation in the UK falls very heavily on bricks-and-mortar retailers versus internet only retailers."


Let's gloss over the fact that Amazon is not "internet only", it's glorified mail order. All Amazon's suppliers pay Business Rates and Amazon has to pay Business Rates on its "eight mega-warehouses" (if we knew the full addresses we could look up the rates bill at the VOA) and existing offices, but here's an interesting bit of news:

Amazon is quitting its UK base of 16 years in Slough and moving to a 15-storey corporate office on the outskirts of the City of London.

The 600,000 sq ft building, known as Principal Place, will be just north of Liverpool Street station.


Righty-ho.

Average Business Rates in the City of London are £18 per square foot, so that means that Amazon will be, quite voluntarily, be paying £10 million tax to the government, on top of the £30 million privately collected tax it will be paying to its new landlords.

I wonder whether the lefties or the rent seekers will ever give Amazon credit for all the VAT they pay in Luxembourg and all the Business Rates they'll be paying in London, on top of normal PAYE payments and the £4 million-odd UK corporation tax?

Ah... thought not.
------------------------------
This scenario also illustrates that while businesses will do their best to minimise the amount of tax they pay on turnover or profits, they are - by definition - not fussed about paying market rent inclusive of taxes on rental values.

Amazon are prepared to pay £40 million a year to occupy that site. They do not care whether they pay £40 million in rent; £30 million in rent and £10 million in Business Rates; or indeed £10 million in rent and £30 million in Business Rates. The matter is simplified if we assume that their new building belongs to Crown Estates or some other government/national body.

That's another KLN demolished!

7 comments:

Sobers said...

Lefties see businesses like Amazon purely as tax producing machines, and utterly ignore the consumer surplus that they create for their customers. The extra value created (or money saved) by Amazon existing for all the people using it alone would justify its existence even if by some method it paid not a penny of any sort of tax. Ditto Google. The value I get from Google is so immense, so I couldn't care less if it pays no tax. The only people who care are the ones that want to take that tax and spend it on their client state, ensuring their own livelihoods, and increased power and status for themselves by so doing. They can't tax and spend the consumer surplus so they ignore its (massive) benefits.

thethoughtgang said...

The CT that Amazon pays is on it's UK business which is, effectively a distribution business. The profit on the retail is booked in Lux.

The most idiot thing about the Amazon rankings is that the global entity doesn't make any profit, and doesn't pay any dividends.. everything is ploughed back into the business.. or 'invested' as those idiot lefties call such practices when they're demanding that business should be doing more of it.

The Stigler said...

Spot on.

On the Sainsbury's point, isn't this how it should be, and actually, a bit hypocritical?

Sainsbury's make money from being quite near shoppers. The state spends a load of money on towns making them nicer, people live in towns and shop in Sainsbury's. There's a lot more Sainsbury's space in Swindon than Calne because Swindon has a larger population, which is a largely because of the M4 and the railway that the state created and Calne doesn't have those things.

One of the things that drove supermarket growth is that they worked out how to do more with cheaper land as car ownership rose and put the land at the edge of town close enough that people could go shopping, and drove the small shops in town out of business. Which I'm perfectly fine with - humans making better use of natural resources - but to then cry that someone worked out how to use even cheaper land better than you is pretty hypocritical.

A tax would make sod all difference anyway. The advantage of mail order is how efficient the use of labour is. Rather than someone standing around in a shop for a dozen customers throughout the day, you can fulfil a dozen orders, even manually, in less than an hour. That's why my mate with his bike operation that did no clever tax tricks made a profit and paid UK tax and undercut the bike shops. He was serving the whole country with 1 person full-time (his wife) and a couple of part-timers who came in after lunch and took the order list and parcelled them up and despatched them. Then he'd get home from work and do the stock control, website maintenance etc.

Sobers said...

"Swindon has a larger population, which is a largely because of the M4 and the railway that the state created"

Er no, which as a Swindonian you should know full well. The State did indeed build the M4, but the growth of Swindon was driven entirely by the building of the railway works by Brunel, which was private enterprise, not the work of the State at all. When the M4 came in the 70s, Swindon was already a large town, driven by railway works employment. It probably would have been no bigger than all the other little Wiltshire market towns if Brunel had gone elsewhere.

The Stigler said...

Sobers,

Actually, Swindon was really struggling at that time because they'd decided to stop building locos in 1965 and afterwards, a lot of the maintenance work moved to Crewe. It was road and rail transport and Swindon's location being fairly close to London and Bristol that saved it and in the 80s.

DBC Reed said...

The man from Sainsbury's has a reasonable point which is why the USA relegalised Resale Price Maintenance that allowed manufacturers to cease supplying shops and other distributors who discounted their goods. It was banned in the UK by Edward Heath who was desperate to get into the Common Market which prohibited RPM per se.The Chinese, like the Americans, do not have a per se prohibition of RPM; cases where all outlets have to sell the goods at the same price or not be re-supplied by manufacturers have to be proved to be anti-competitive.
Don't worry I am the last person in England to believe in RPM (But there weren't many land taxers once)

Physiocrat said...

Swindon was, if I recall, the GWR's second choice. First choice was Oxford but the dons didn't want nasty steam locomotives being built by the dreaming spires.