I've already mentioned the Guardian's news story, published this morning, discussing Amazon's UK tax affairs.
The essence is this. In 2010, as I surmise it, (and I'm being cautious) the turnover in the UK could have been at least £2.8 billion - and may have been over £3 billion of actual sales to UK customers based on Amazon's worldwide accounts. Of that, according to the Guardian, just £147 million was accounted for here, but all of that would have been billed to Luxembourg for what might be called sales fulfilment services. Just £1.9 million was paid in tax here in the UK in 2010. There were however 2,265 people in the UK and just 134 in Luxembourg - servicing 27 countries, meaning maybe just 10 at best were servicing the UK. And let's then make a further assumption - that the fixed assets in Luxembourg are pretty meaningless - say £5 million in total but that the Swindon warehouse cost, and I suspect this is modest, £100 million. I stress - I'm guessing this but. And finally, the profit in the UK should (and I suspect I'm low on this one) be £125 million.
But with these facts we can recalculate what Amazon should pay here in the UK using the unitary apportionment formula method of taxation I discussed yesterday. We split the profit in accordance with a formula.
First split the profit in three. One third is then allocated between the UK and Luxembourg based on where the sales really are. Well, all these sales are to UK customers so that ratio is 100% to the UK and 0% to Luxembourg. So that £125 divided by three = £41.66 million of profit allocated to the UK.
Then we split the next third on the basis of where the people are. That's 2,265 here and 10 in Luxembourg. £41.66 million x 2,265/2,275 = £41.5 million to the UK and £166,000 to Luxembourg.
And then let's do assets - admittedly the one I have had to guess. The guess is £100 million here and £5 million in Luxembourg so that is £41.66 million x 100/105 = £39.7 million of profit here and £1.96 million to Luxembourg.
Add it up and near enough £122.8 million of profit would be in the UK and £2.2 in Luxembourg. Instinctively that feels right of course - because that is exactly how the economics really are. Glaringly obviously, as Amazon's accounts admit, the market is here in the UK, not in Luxembourg. But the game of abuse that is being played means that almost all the profit goes to Luxembourg on this one - and almost none to us.
That's why we need radical corporation tax reform in the Uk and worldwide. IUnitary apportionment formula taxation stops tax haven abuse of countries like the UK. It's glaringly obviously fair and the data to do it could be available if we had country-by-country reporting accounts.
The time for it is now.
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Im curious, if the warehouse was in Luxembourg would you have an issue with this, ie someone in the UK places an order for a book to a Luxembourg company and the book is shipped from Luxembourg to the customer in the UK?
It would change the formula
R
I’m not bothered where the bl***y warehouse is! I’m just sick of paying tax when big business is encouraged to avoid it.
what formula? If the warehouse was in Luxembourg then there would be no UK tax on anything and no jobs created in the UK either.
Read my article please
It is all explained there
There would still be a UK selling operation
How exactly do you get a UK selling operation? The goods cannot be sold in two places in just one transaction.
Incidentally, it is noticeable that you did not include the value of the intellectual property and technology based assets based in Luxembourg in your apportionment of taxable income, which is after far more important to the Amazon business than people, warehouses and anything else you care to include in formulators apportionment. You can safely assume that the UK “operation” has none of these.
Finally, you assume that only the UK is an associate of Luxco, which of course overstates your rough estimate even further.
Formula apportionment ignores artificial assets like intellectual property
That is simply the result of people’s work wrapped up to provide a tax dodge
ive read the article (assume you mean the guardian one linked, apologies if not) and i dont see an answer.
take the warehouse out of the UK and you basically have a foreign company importing goods into the UK – no permanent establishment in the UK so no taxable presence in the UK
Not if you change the rules – as I am suggesting
Then we tax distance sellers
We’re moving that way
How can you say that the IP is ‘artifical’?
If you were buying Amazon and they said ‘OK, you can have all the property, the stock, the customer accounts and the people.. but we’ll keep the brand name and the website code’ would you be happy with that deal? Would that leave the seller with nothing but some worthless pieces of paper and computer code?
If you want the tax system to do a better job of capturing profits in the modern economy.. and I’m happy for people to look to do that.. you, at least, have to understand how the value in said economy is generated.
Whether the value generated by the IP is most properly taxed in Luxembourg is fine to dispute… but to suggest that the IP doesn’t generate value, or that it’s contribution is irrelevant, is bizarre. Building a brand is as valid a business process as building a factory.. albeit that the accounting/taxation treatment is, unquestionably, harder to quantify.
It’s not bizarre at all
It’s an exercise in artificial tax abuse
So just as libertarians say we should ignore the company I say we should ignore IP
But you entirely disagree with the libertarians on that point, so that’s not a helpful answer.
Do you believe that the IP has no role in the generation of profit? Or are you trying to disregard it because you think it opens up additional possibilities for abuse inside your model?
I am sure you can make a case for preventing it from influencing the tax*.. but pretending that it’s simply not something of value is, I maintain, bizarre.
Like the tax havens they are located in, IP is an artificial construct used in most cases now for tax abuse
Which is why it needs to be ignored in formula apportionment
well if you are seeking to argue that IP does not exist for tax purposes (which is frankly bizarre) then you wont want to tax people when they sell this IP will you (i would remind you that IP is currently taxed if sold by a uk company or individual)
im really struggling with where you are going with this to be honest.
Just go do some reading on unitary taxation
[…] and HMRC finds that nothing is wrong, and that the UK’s taxation system is completely bust, as one financial analyst puts it: “We need radical corporation tax reform in the UK and worldwide. Unitary apportionment formula […]
Warehouse in Swindon? Didn’t know about that one. I know they’ve got a massive complex next to the M1 in Bedfordshire – so maybe the assets side of the formula needs a further tweak.
Well I believe they have 5 locations
Five locations – five sets of UBR, and they cannot duck out of any of that. There is no excuse for tax systems that allow international outfits to get away with paying their due in each of the countries where they operate. If we don’t like them ducking Corporation Tax, then OK, phase it out and collect the same amount from the UBR instead. If they do not have to pay CT then they will be able to afford the extra UBR.
I see the trolls are hard at it.
Transfer merchandising? CFCs? All highly regular and above board. Nothing to see here, move along now!
I’ve been trying to understand the issue and mechanics involved and it doesn’t seem that clear cut, although I must admit to being a bit dim. So if I have a company that is based here but only generates profits and employs people in another country, then the company could pay the lower rate in the other country and then transfer back to here? It seems a good incentive for investing in countries with low corporate tax rates then. Or have I missed something?
But it has to sell too
You ignore that
The problem is unitary taxation is inconsistent with taxing people on the economic substance, and you have always said that the right amount of tax is where the economic substance accords with where they are reported.
This is yet another instance where your ideas contradict – and you have loads of them contradicting each other.
What a very odd claim
Unitary tax is all abiut substance
Your accusation is straightforwardly wrong!
Unitary and substance? An oxymoron.
By its very nature, arbitrary formulae are formalistic and not substantial.
In your example on Amazon, you didn’t apply any percentage to the intellectual property that generates so much of Amazon’s turnover and profit. Why? Because you think intellectual capital is a tax dodge? An arbitrary formula then.
Consequently form trounces substance.
Intellectual property is an artificial construct
It can only ever have form, which is also the basis of its valuation
So of course ignoring it delivers substance and has to do so
Do you, by any chance deliver all your opinions to subscribe to norms established at the Mad Hatter’ tea party, or you reserving that for this issue – because your argument, as you must know, exactly contradicts reality (unless you’re a lawyer – but then they rarely have any grasp of what reality is in the first place).