Amazon paid no corporation tax despite record sales income

• Amazon called out for paying zero corporation tax in 2020
• Does US President Joe Biden’s global minimum corporate tax rate present a turning point for corporation tax?
• Martin Sorrell says governments will have to introduce post-COVID tax hikes to tackle pandemic debt
• UK Chancellor Rishi Sunak says wealthy UK families will avoid post-pandemic tax raid

Multinational technology giant Amazon has been called out for paying zero corporation tax in Europe last year despite posting a record sales income of EUR 44BN (GBP 38BN).

According to the Guardian, accounts for Amazon EU Sarl published online revealed that as the multi-billion-dollar company recorded a loss of EUR 1.2BN, they avoided paying tax to the Grand Duchy.

However, questions have been raised over the company’s tax planning, with the Fair Tax Foundation (FTF) calling the scale of tax-dodging “mind-blowing”. The FTF went on to say that the tax system has allowed Amazon to undercut local businesses unfairly.

Besides paying no corporation tax, EU legislators gave Amazon EUR 56M (GBP 48.3M) in tax credits to counter future tax bills and permission to carry forward EUR 2.7BN (GBP 2.3BN) in losses to offset future tax charges.

Amazon criticised for paying zero corporation tax in Europe for 2020

The Luxembourg unit, which sells products to hundreds of millions of people across France, Germany, Italy, the Netherlands, Spain, Sweden, Turkey and the United Kingdom to name a few, employs 5,262 staff meaning income per employee totals EUR 8.4M.

Given that recent reports have revealed that income sales for Amazon EU Sarl increased by EUR 12BN (GBP 10.3BN) in 2020 to EUR 44BN from EUR 32BN in 2019, wage expenditure barely makes a dent.

Meanwhile, separate data from Amazon’s US accounts reveals that its UK income soared by 51% in 2020 to an unprecedented GBP 19.4BN as online shopping increased during the national lockdowns.

The increase in remote working also drove Amazon Web Services (AWS) sales, the world’s most comprehensive, evolving cloud platform which offers a broad set of on-demand cloud-based products.

Amazon is yet to reveal how much corporation tax it paid in Britain for 2020. However, tax lobbying groups such as the Fair Tax Foundation have raised concerns given that Amazon paid just GBP 293M in tax for 2019 despite collecting sales income of GBP 12.5BN.

Labour MP Margaret Hodge has described the situation as “appalling” and implied that Amazon’s tax avoidance has illustrated just how broken our tax system is as giant multinational corporations continue to benefit at the expense of smaller, local businesses.

Margaret Hodge added: “Amazon’s revenues have soared, and it continues to shift its profits to tax haven destinations like the Grand Duchy to avoid paying its fair share of tax”.

“These large tech businesses all rely on our public services, our infrastructure, and our educated and healthy workforce. Yet, unlike smaller firms and hard-working taxpayers, these digital giants fail to pay fairly into the common pot for the common good.”

FTF Chief Executive Paul Monaghan also criticised Amazon for tax evasion, stating that the latest figures highlight an issue that needs to be urgently addressed as we are “seeing large corporations dominate the market on the back of untaxed incomes at an exponential pace.”

Mr Monagham added that by allowing it to continue, governments are saying it is acceptable to “unfairly undercut local firms that take a more responsible approach.”

Labour MP and Shadow Financial Secretary to the Treasury, James Murray, said Britain should be backing Joe Biden’s plans to terminate tax avoidance by introducing a global minimum corporate tax rate to create a fairer tax system.

What is Joe Biden’s global minimum corporate tax rate?

The Biden administration has proposed a new global minimum corporate tax rate, which appears to be gaining favour with the European Commission and Canada’s Finance Minister Chrystia Freeland.

Although the UK said it is open to proposals for global minimum corporate tax rate, Chancellor Rishi Sunak stated  international tax rules aren’t designed for a modern digital economy.

Under plans outlined by US President Joe Biden and Treasury Secretary Janet Yellen, the global minimum corporation tax rate would be set at 21%.

Their proposal also mandates large corporations to pay tax in countries that they operate in rather than lower-tax jurisdictions to which many have routinely shifted their profits.

President Joe Biden said that his new global minimum corporate tax rate would crackdown on global tax avoidance. The Biden administration also stated that it would end “a race to the bottom”, referring to nations that have lured multinational firms to their shores by undercutting corporation tax rates in other countries.

Chief Executive of the Tax Justice Network, Alex Cobham, says that the notable upsurge in profit-shifting has underscored a need for countries to cooperate and reform the system.

However, while this is a huge turning point for the global tax system, its success is hanging in the balance as it could only be implemented if there is overall coordination among nations.

A meeting of G20 finance ministers and central bank governors will be held on July 9th to decide whether to implement Biden’s proposed system.

British businessman Sir Martin Sorrell said that corporation tax is likely to increase whether an international taxation system is implemented or not as governments will need to introduce post-COVID tax hikes to tackle public debt.

UK Chancellor Rishi Sunak unveiled an increase to corporation tax during his March Budget, albeit the new rate doesn’t come into effect until 2023.

Mr Sunak has also said that he is preparing to go water down on plans to increase Capital Gains Tax (CGT) amid signs that the UK could see robust growth this year, meaning some of Britain’s wealthiest families will escape a post-pandemic tax raid.

Chancellor Rishi Sunak says the UK’s top earners will escape the post-pandemic tax raid

With a UK consumer spending boom on the cards, Treasurer Rishi Sunak is “cautiously optimistic” about solid growth in the UK for 2021.

During the Wall Street Journal’s CEO Council Summit on Tuesday evening, Mr Sunak said that he is considering backtracking plans to raise CGT. The UK Treasurer believes that the other measures announced in his March Budget could be enough to restore UK public finances.

Rishi Sunak said: “We know that there is an enormous amount of excess savings both in the household sector, approaching GBP 140bn, and GBP 100bn sitting on corporate balance sheets.”

When questioned about whether the wealthiest families should brace for tax hikes, Mr Sunak said that earners in the top 1% already pay 30% of all income tax revenues.

Instead, Chancellor Sunak praised Britain’s progressive tax system and stated that the new “super-deduction” capital allowances for companies would help boost investment rates and unlock cash to buoy economic growth in Britain.

Chancellor Rishi Sunak believes that the incentive which provides firms with a two-year 130% tax relief on capital spending will make the UK one of the most attractive investment destinations in the world.

The UK government has also launched a developer tax consultation which they hope will raise approximately GBP 2BN as part of a wider GBP 5BN cladding remediation package.

According to GOV.uk, the Treasury intends to apply the new residential developer tax to Britain’s largest property developers with profits of GBP 25M and more.

However, measures are being taken to ensure that the tax rate remains stable and is proportionate to the planned corporation tax hike in 2023.

It comes as the Biden administration prepares to implement the first significant tax hike in the United States in almost 30 years, with Americans earning more than USD 400K.

According to recent reports, Americans earning under 400K will not see any tax increase, meaning only the top 0.3% of earners will be affected.

In a televised speech on the matter, President Biden said: “It’s about striking a balance between the system and growing the economy. It means wealthy investors no longer pay lower marginal tax rates than their secretary pays — the secretary in their office.”