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HMRC ‘Investigating’ Amazon Over Corporation Tax

Steve McCaskill is editor of TechWeekEurope and ChannelBiz. He joined as a reporter in 2011 and covers all areas of IT, with a particular interest in telecommunications, mobile and networking, along with sports technology.

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Amazon paid no corporation tax on its £3.3 billion UK sales in 2011

Amazon is reportedly under investigation by HM Revenue and Customs (HMRC) following the revelation that it pays no corporation tax in the UK.

The UK’s largest online retailer does not pay any tax on the £3.3 billion worth of sales it generated in the country last year as it has been based in Luxembourg since 2006.

Concert of Europe

The revelations were uncovered in regulatory filings made by its parent company Amazon.com to the American Securities and Exchange Commission (SEC), which said that the HMRC investigation related to the period that the company has been based in Luxembourg.

Amazon’s UK business is currently owned by Amazon EU Sarl and its UK operations are classified as just a delivery organisation. The Luxembourg business employed just 134 people in 2010, but generated a turnover of €7.5 billion (£6.5bn), compared with the UK operation’s turnover of £147 million and a workforce of 2,265.

The UK registered company reported a total tax bill of just £3 million in the period between 2003 and 2011, and although it never said why it made the move to Luxembourg, another SEC  filing said the company expected it to have tax benefits.

Amazon is also able to apply local VAT of three percent on the sale of ebooks rather than the UK rate of 20 percent, something that is extremely beneficial since Kindle books now outsell paperbacks.

Doesn’t add up?

According to The Guardian, Amazon’s US operations had earned an average 3.5 percent profit margin in the last three years. If this was applied to Amazon’s UK sales of £7.6 billion – £10.3 billion during the same period, it would generate taxable profits of £266-360 million and a corporation tax bill of up to £100 million.

The HMRC refused to confirm or deny that it had opened an investigation, saying it had a duty to protect the confidentiality of the Amazon, which told TechWeekEurope, “Amazon EU serves tens of millions of customers and sellers throughout Europe from multiple consumer websites in a number of languages, dispatching products to all 27 countries in the EU.  We have a single European Headquarters in Luxembourg with hundreds of employees to manage this complex operation.”

Any possible investigation would be the latest in a number that Amazon is currently facing around the world. The US has moved to tighten legislation that means the online retailer does not have to pay tax in states where it does not have an office or warehouse. Meanwhile, operations in China, Germany, France, Japan and Luxembourg are also investigation.

Amazon hasn’t been particularly kind to the UK in recent times, with British consumers growing increasingly impatient at the absence of any release schedule for the company’s phenomenally successful Kindle Fire tablet in the country. However last week, it did announce it was going to bring a touchscreen version of its Kindle e-reader, the Kindle Touch, to the UK later this month.

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