Saturday, 11 August 2018

Amazon's tax bill (here we go again)

From The Independent:

Philip Hammond has said he will consider tax changes hitting online businesses to ensure there is a more level playing field for high street retailers.

The hint at a so-called Amazon tax for online companies that sell products over the internet comes as high street stores – under pressure from soaring costs like business rates – demand a fairer system.

The only logical way that a special 'Amazon tax' would help high street retailers is if the tax is so high as to discourage people from buying online; or so high as to push Amazon into a permanent loss-making situation.

Mr Hammond added: “The European Union has been talking about a tax on online platform businesses based on the value generated. “That’s certainly something we’d be prepared to consider.”

Amazon already pay two kinds of taxes on 'value generated', being normal VAT at 1/6 of their turnover and corporation tax on their residual profits. Do they play fast and loose and book profits sideways elsewhere? Quite possibly, says The Murphmeister, but that's a different topic. Try enforcing existing laws first before you start inventing new ones on an ad hoc basis.

The Guardian is of course going to town on this:

The company... revealed that pre-tax profits at its UK business tripled from £24m in 2016 to £72m last year. The figures were reported by Amazon UK Services, the company’s warehouse and logistics operation that employs more than two-thirds of its 27,000-plus UK workforce, in its annual financial filing to Companies House. The company almost halved its declared UK corporation tax bill from £7.4m in 2016 to £4.5m last year.

Amazon UK’s warehouse and logistics staff and management enjoyed a bumper $164m (£125m) payout from the company share scheme – a rise of almost a third on 2016’s £95m bonanza – thanks to the company’s surging share price... The payouts will have reduced Amazon’s tax bill because under UK tax law companies are required to deduct the vest value of the shares provided to employees.

Companies aren't *required* to claim this deduction, but they would be stupid not to (I've submitted such claims for my own clients, it's great fun). The value of those shares is liable to PAYE in full as if it were a cash payment.

PAYE rates are much higher than corporation tax rates, so these share-related gains don't *reduce* Amazon's tax bill, they significantly *increase* it, i.e. that £125 million was probably taxed at about 40%, meaning Amazon paid £50 million extra PAYE in addition to the £4.5 million corporation tax. Which is a pretty high overall tax rate when compared to £72 million profits.

For accounting purposes Amazon Services UK reports turnover as a charge to its parent company for the cost of delivering products, which hit £1.98 bn last year. Amazon will not reveal how much it paid in total to HMRC last year, beyond what it paid through Amazon Services UK.

That's turnover net of VAT, so Amazon will have paid about £400 million in VAT as well. Makes a total of £454.5 million tax paid. And we have no reason to assume that they don't pay full Business Rates on their offices and warehouses etc.

All the mugs who believe that 'the consumer bears the VAT' can go back to the remedial class. VAT is a tariff, just like the tariffs that Trump imposed on lots of stuff recently. Did all the businesses affected by them just shrug their shoulders and say 'Not to worry, consumers in the USA will pay the tax'? Of course not.


Lola said...

Thanks for doing all that. I read the article in the DT and read the comments. A lot were all for Hammond taxing Amazon more. They need to read your post. They won't of course.

In passing Hammond and Spud Murphy deserve each other.

Curtis said...

I was wondering how true "the consumer doesn't bear the VAT" is in the US and Canada where all prices are displayed ex-sales tax, and the base price stays the same across large areas (sometimes nationwide) with many different sales tax rates. Have there been any studies?

Unless you are good at arithmetic or can be bothered to get out a calculator, you don't know how much the tax will be until you come to pay. When thinking about how much things cost, people tend to consider the ex-tax prices, and they are literally paying the taxes "separately" at checkout, If taxes change, merchants tend to pass on the changes in full unlike on this side of the pond - they wouldn't "absorb" a tax rise by lowering the base price

Mark Wadsworth said...

L, all part of the service.

C, yes of course there have been studies. I posted the findings of one on this blog. As you would expect, there is NO correlation between sales tax rate and selling price*. Selling price is set by the markets. Govt then takes a slice.

* Except for goods where demand is not price sensitive i.e. fags.

George Carty said...

Amazon's tax dodging may be giving it an unfair advantage over home-grown online retailers, but it isn't what's killing the High Street (high rents are almost certainly the culprit there).

Mark Wadsworth said...

GC, it does appear that landlords are holding out for unrealistic rents.

George Carty said...

I suspect a lot of them are too heavily leveraged to cut their rents.

Mark Wadsworth said...

GC, we looked at that. By and large, they aren' highly leveraged. Which means they can sit out void periods. Even though business rates (as a crude form of LVT) ought to act as the same deterrent (but seemingly doesn't).

Ben Jamin' said...

Surely a level playing field would entail not punishing firms for what they produce by taxing output and instead only ask they to pay compensation, in the form of a land tax, to those they exclude from valuable natural resources?

Or am I missing something?

Bayard said...

"but it isn't what's killing the High Street (high rents are almost certainly the culprit there)."

However, there does appear to be a conspiracy of silence about this.
Being cynical, I would suspect that it is the massed ranks of the landlord army that are behind all the calls to reduce business rates, which is why almost every program and article on shops and retailing offer this as a "solution".

Mark Wadsworth said...

BJ, no.

B, you don't need to be cynical to assume that. Of course they are.

Mike W said...

Crown Estate V Maplin = still empty store in my cities best 'out of town' shopping area.

Keep folks posted. I still think of young Maplin manager (unemployed?) who thought it was Brexit and the exchange rate that was screwing him :(

GC 'I suspect a lot of them are too heavily leveraged to cut their rents.

See above: old-school, feudal rentier, think in 'power/market share' to be played out, dynastically, over decades. They can remain feudal longer than you serf can remain solvent, so to speak :)