Taxing times for online sales

They managed to pay virtually no Corporation tax on their multi-million pound UK sales.

Last month the MD of John Lewis, Andy Street called on the Government to review tax policy and ensure foreign-owned retailers pay corporation tax on profits in the UK. His comments came after Starbucks, Google and Amazon were grilled by the House of Commons Public Accounts Select Committee which asked how they managed to pay virtually no Corporation tax on their multi-million pound UK sales. Whilst this took place several MP’s at the back of the committee room could be seen furiously scribbling notes onto the back of expenses claim forms.

The Public Accounts Committee is chaired by the formidable Labour MP Margaret Hodge who gave Andrew Cecil from Amazon a good ticking-off. Despite being the Company head of public policy Mr Cecil seemed to suffer from a severe lack of knowledge about tax matters. Maggie launched into him with ‘The idea that you come here and simply don’t answer the question and pretend ignorance – it’s just not on, it’s awful’ and when she insisted a more senior executive be sent to answer further questions Mr Cecil looked rather relieved.

Despite employing 15,000 people and enjoying estimated sales of £3.9 billion in the UK last year it paid just £1.9 million in tax.

Amazon has sparked self-righteous outrage amongst MP’s because it is based in the tax haven of Luxembourg and despite employing 15,000 people and enjoying estimated sales of £3.9 billion in the UK last year it paid just £1.9 million in tax – the equivalent of just 2.5pc on its estimated profits. The Committee insisted it produce details of how much it earns in the UK and what proportion of its EU sales originate in Britain. This encouraged Andy Street of John Lewis to tell Sky TV:
‘There’s less money to invest if you’re giving 27percent of your profits to the Exchequer. Clearly, if you are domiciled in a tax haven [Amazon] will out-invest and ultimately out-trade us and there will not be a tax base in the UK.’

Sour grapes? Well maybe, or perhaps he was just fishing to find out who Amazon’s tax accountants are. The John Lewis Partnership, owned by its 76,500 staff has reported profits down due to it’s commitment to be ‘never knowingly undersold’ and the need for investment. Profits had also been affected by ‘extremely challenging conditions’ – particularly from online retailers like Amazon. Sebastian James, the head of Dixons Retail group agreed with Andy and reiterated how retailers who make profits in the UK should pay tax in the UK.

But that’s the question – how do you tax Companies who make their profits online? You might be sitting at a computer in the UK when you place an order for a book with Amazon, but the sale actually takes place where the Company is based – in Luxembourg. That’s where the tax is payable.

‘We’re not accusing you of being illegal, we’re accusing you of being immoral’

Quite how you get around this, short of banning all online sales is a real problem for HM Treasury. The likes of Amazon, Google and Starbucks are in no hurry to co-operate so all were summoned to the PAC hearing. They all denied accusations of aggressive tax avoidance, which was met with derision from members of the committee. MH launched into them with: ‘We’re not accusing you of being illegal, we’re accusing you of being immoral’ which also made several MP’s shift uneasily in their seats.

Amazon apparently paid no tax in 2010 on UK sales of £3.3 billion.

The figures discussed were eye-watering: Amazon apparently paid no tax in 2010 on UK sales of £3.3billion, Google paid only £6 million last year on sales of £2.6 billion and Starbucks paid just £8.6million in tax over 14 years of trading in Britain – and none at all in 2011 on sales of £398 million. Starbucks were told to disclose the terms of their ‘sweetheart’ tax deal with Dutch tax authorities which they have always refused to reveal but quite what will happen if they fail to do so is unclear.
Of course tax avoidance is perfectly legal but tax evasion gets you locked up with Starbucks executives. Remember that when you’re filling-in your end of year tax return.

Happy Christmas!