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  • Online and off limits? The row over Amazon’s tax bill

    15 September 2017

    Andy Wood

    Over the last two decades, the way that we live and communicate has been radically shifted by the global population’s mass adoption of the benefits of the so-called ‘Digital Age’.

    One of the most striking changes has been the way in which technology has effectively been able to reduce the world’s high streets into smart devices no bigger than the palm of our hand.

    The shrinkage has been inversely proportionate to the mammoth profits generated by some of companies behind the process.

    Arguably, the biggest name is the online marketplace Amazon. Having only established the firm in 1994, Jeff Bezos has seen it become the reflexive retailer – the place to which many of us instantly turn to buy even the most obscure items – and, as a result, he is now one of the richest men on the planet.

    That prominence comes – if you pardon the pun – at a price.

    Only last month, a single critical tweet by the US President, Donald Trump, wiped more than £4 billion from the value of Amazon’s shares. The message was the latest exchange in a dispute about coverage of ongoing Oval Office intrigue by the Washington Post, one of America’s most prestigious news titles and another part of Mr Bezos’ business empire.

    Attacks have not been limited to the other side of the Atlantic. Just days before Trump’s latest social media outburst, Amazon found its affairs under scrutiny here.

    Questions were asked as to how it was able to more than halve its Corporation Tax bill while recording a 54 per cent increase in turnover.

    It wasn’t the first time that Amazon had found itself in the firing line in the UK.

    While ruminating over John Lewis’s performance during the Christmas period in 2015, its then Chief Executive, Andy Street, complained that apparently preferential treatment for Amazon had created a “tax problem”.

    He wasn’t alone. In fact, his position attracted the support of none other than the Prime Minister, Theresa May, who, when asked about new tax evasion penalties, remarked: “It doesn’t matter to me whether you’re Amazon, Google or Starbucks: you have a duty to put something back, you have a debt to fellow citizens and you have a responsibility to pay your taxes”. I think, though, that Mrs May was – maybe inadvertently – on the right track.

    For, whilst not wishing to be seen as anything like an apologist for tax avoidance by multi-nationals, SMEs or individuals, I think the latest criticism of Amazon is misplaced.

    That’s not because I necessarily want to be contrary.

    The number of people who have publicly discussed how Amazon’s tax affairs are perfectly legitimate is small. Some of those have commented about the importance of noting its lower profits and practice of rewarding staff with shares.

    In fact, Amazon was able to reduce its taxable profits by £11.7 million as a result of providing share options to staff who’d been with the company more than two years.

    It is not the only big retail name choosing to take advantage of what is a quite legitimate tax break which was designed by government to promote employee share ownership. Marks and Spencer, for instance, was able to lower its Corporation Tax bill by some £3.4 million last year in just such a fashion.

    There is, though, something else worth mentioning.

    As its expansion into grocery and fashion deliveries continue and the volume of products which it sells increases, Amazon’s physical footprint in the UK is growing. Even as Donald Trump was getting ever more irate, Jeff Bezos’ colleagues were announcing 1,000 new and permanent jobs in Bristol – a move which followed 5,000 other jobs created during 2016.

    It is also one of a number of business investing heavily in research and development as a means of advancing their operations and, for which, they may be entitled to claim tax relief.

    In September last year, HMRC revealed that the amount of such support granted in 2014-15 had risen by £675 million – almost 40 per cent – on the year before.

    The amount of relief varies depending on the size of the company and is proportionately more attractive to the SMEs which accounted for four-fifths (82 per cent) of the 20,830 firms which made claims in the period covered by the HMRC report.

    In these days of Brexit and uncertainty and thoughts about whether firms will remain in the UK or not, I reckon that Amazon’s critics should choose their words carefully. To paraphrase Theresa May’s words, it would seem that Amazon is putting something back.

    I should stress that we should all be eager to police those companies which unjustifiably dodge their taxes.

    Likewise, we should applaud businesses of all sizes which appear willing to contribute to the economy’s success – along with their own and that of their employees, it must be said – even if they take advantage of available tax breaks in order to do so.