Amazon has long been one of the more prominent companies to face accusations of illegal tax avoidance practices on an international scale. Now, the company has seemingly surrendered in one of its most long-running battles and agreed to cease using one of its most lucrative tax avoidance practices.
Amazon has faced both criticism and investigations by authorities as a result of its practices of moving earnings around internationally in order to reduce the amount of tax it pays on profits made in certain jurisdictions. Large amounts of Amazon’s profits made in the UK and other European companies are redirected to Luxembourg without tax first being paid. As Luxembourg is a very low-tax jurisdiction, funnelling profits from other countries there before paying tax in the country of origin results in a much smaller tax bill – but the legality of this approach has frequently been called into question.
Now, Amazon is to start calculating profits on all sales in the country in which those sales took place. In other words, UK sales will no longer be reported in Luxembourg instead of the UK to avoid paying UK tax.
Amazon’s apparent surrender comes soon after Chancellor George Osborne announced further measures to crack down on tax avoidance and the redirection of profits made in the UK. Since April, Osborne has introduced a new class of tax known as diverted profits tax, specifically designed to catch out corporate tax structures like Amazon’s. Indeed Amazon, a company which has long denied claims that this structure is an artificial one designed to avoid tax, would certainly have been caught by the new tax had it not announced this change of heart. Under the diverted profits tax, the company would have had to pay tax on the profits diverted to Luxembourg at a punitive rate of 25%.
A spokesman speaking on behalf of Amazon said simply that the company would begin “recording retail sales made to customers in the UK through the UK branch. Previously, these sales were recorded in Luxembourg.”
Of the new diverted profits tax, Osborne said that “while we offer some of the lowest business taxes in the world, we expect those taxes to be paid.” He went on to add: “If you abuse our tax system, you abuse the trust of the British people.”
The new tax has been nicknamed the Google Tax, as prominent search and technology giant Google is another company often accused of this kind of tax avoidance practice. It is reported that a number of other countries are considering similar steps to tackle diverted profits.