Internet retailer Amazon.com Inc is to be called back to the British parliament to clarify how its activities in the UK justify its low corporate income tax bill, two British lawmakers told reporters.
Amazon will follow search giant Google, which attended another grilling by the parliament’s Public Affairs Committee over its tax affairs on Thursday. A report earlier this month raised questions over Google’s earlier assertions that its UK-based staff do not sell to customers.
Over the past six years, Amazon has paid about US$9 million in income tax on over US$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.
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 Web site 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 1980s,” 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, fulfillment, 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 minimize 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.
The UK tax authority, Her Majesty’s Revenue and Customs (HMRC), has never sought to define in court the limits of what an Internet company can do in Britain before it is deemed to have a taxable presence. Lawyers and academics say this has allowed a wide gray area to emerge.
In the case of Amazon at least, some tax experts said that in conducting a wide range of activity in the UK, it may be on the wrong side of the hitherto undefined boundary.
Yet Jacques Sasseville, head of the tax treaty unit at the Organisation for Economic Co-operation and Development, which advises rich nations on tax policy, said he was not sure if a boundary exists.
He said where sales were conducted online, it was almost impossible to prove a taxable presence in a jurisdiction, irrespective of how much activity is conducted in that country.
Member of Parliament Margaret Hodge said she wanted HMRC to look more closely at the company’s affairs, to see if Amazon was paying all the tax it should.
She also said she planned to call Amazon representatives back to testify to the committee which she chairs and clarify written evidence and witness testimony the firm gave in November last year, in which it downplayed its activities in Britain.