After Google, it's Amazon's turn to be grilled by UK tax authorities

Internet retailer Amazon.com will be called back to the British parliament to clarify how its activities in the UK justify its low corporate income tax bill, two lawmakers told Reuters.

Amazon will follow search giant Google, which attended another grilling by parliament’s Public Affairs Committee (PAC) over its tax affairs on Thursday. A Reuters report earlier this month raised questions over Google’s earlier assertions that its UK-based staff don’t sell to customers.

To tax, or not to tax (Image credit: Getty Images)

Over the past six years, Amazon has paid around $9 million in income tax on over $23 billion of sales to British clients, because it says it operates a single European business out of Luxembourg, rather than a multinational structure of independent subsidiaries in different countries, and should therefore pay tax in Luxembourg.

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However, Reuters has uncovered evidence from the company’s own statements, job advertisements, statements from three suppliers and five former employees, as well as the profiles of over 140 staff on networking website LinkedIn, which suggests the UK unit has a high degree of autonomy, with local managers deciding on many aspects of its business.

The information, collected during a three-month investigation, suggests that while Amazon depicts itself as a virtual business, its structure may not be so different from its bricks-and-mortar rivals. “The basic business model wasn’t very different to a mail order company in the 1970s or 80s,” said Mark Riley, a Business Development Manager at Amazon.co.uk between 2005 and 2008.

Bryan Roberts, Retail Insights Director for consultants Kantar Retail, said apart from the fact buyers seal deals over the Internet, Amazon’s UK unit Amazon.co.uk Ltd, which is based in an office block in Slough, near London, was essentially a UK retailer.  “Amazon.co.uk is a British business in that 99 percent of the people who are responsible for merchandising, buying, the online activity, fulfilment, are based in Slough,” said Roberts, an expert who advises many Amazon suppliers. Amazon declined to answer any questions about its UK business.

On Thursday, the Guardian newspaper reported that it had found “extensive UK activities” for Amazon that suggested the UK tax authority could be tougher on taxing its British operations. Companies, especially those which sell over the Internet, increasingly designate their British subsidiary as a supplier of support services to an affiliate in a low-tax jurisdiction, through which sales are then booked. Firms including Expedia and Microsoft have used such arrangements to minimise tax bills while also employing people in a wide range of roles in Britain, their accounts, employee profiles on their web pages, job advertisements and the LinkedIn profiles of staff show.

Amazon and Microsoft say they follow tax law in every country where they operate. Expedia declined to comment.

The practice is based on international tax rules which allow companies to conduct “preparatory and auxiliary” activities in a country without creating a taxable presence there. Amazon declined to say whether staff at Amazon.co.uk had management oversight or were responsible for profitability for different retail product lines. Amazon’s auditor Ernst and Young declined to comment.

Trouble in UK?

Amazon.co.uk’s principal activity is “the provision of fulfilment and corporate support services to other group undertakings”, according to its 2012 accounts. Amazon’s Brussels-based Director of Public Policy, Andrew Cecil, told the committee in November that the UK unit did not operate as an independent business.

“We are operating a single European company … All the strategic functions for our business in Europe are based in Luxembourg,” he said.

Amazon said in subsequent written testimony to the Public Affairs Committee that the UK’s roles included customer support, accountancy, tax, legal, human resources, localisation and similar back office services; merchandising and marketing support services; and purchasing assistance.

Amazon supplier Gary Braithwaite, who helps manage the Amazon relationship at Elland, North of England-based organic and vegan food distributor Suma Wholefoods, said his cooperative has had no dealings at all with Amazon in Luxembourg, but works with its UK staff. “We actually deal directly with them. Every so often we go down to visit them in Slough. They’re really nice people,” he said.

The employment section of Amazon’s own corporate website says: “Our Slough teams manage all corporate functions, including vendor management, marketing, software development and legal.” In late March, the careers section of the website advertised dozens of Slough-based jobs in these categories.

A ‘Senior Vendor Manager - Beauty’ with Amazon.co.uk was expected to “seek out, engage, motivate and build new and existing supplier partnerships,” while prospective candidates for Senior Vendor Manager - Mobile Communications were told the job would require them to “m_anage existing supplier relationships maximising sales, market segment share and profitability_.”

Whatever the legal situation, Amazon is likely to face tough questions when it appears again in front of lawmakers in coming weeks. “We will take a much closer look at their internal financial arrangements,” said member of parliament Nick Smith, who also sits on the PAC. “Whilst they will be shown every courtesy, Amazon had better put on their tin hats.”

Reuters