Amazon proves the taxman can make multinationals pay their fair share

Getting global multinationals to pay tax isn't a lost cause, says Merryn Somerset Webb. Just look at Amazon.


Amazon has responded to criticism of its tax arrangements

There have been endless suggestions over the last few years that developed countries should stop bothering to try and collect corporation tax. The global multinationals can effectively choose where they pay tax these days, the story goes. So trying to pin them down is pointless.Better to abolish corporation tax and to try and get extra revenue in from consumption taxes to compensate.

Regular readers will know that I don't buy this. Multinationals may think they rule the world, but when it comes to a fiscal crisis, sovereign means sovereign. The countries in which multinationalswant to do business can tax them as they like, as George Osborne made clear when he introduced the concept of the diverted profits tax (DPT or Google tax) last year.

Amazon appears to have recognised it, too. It is about to start countingthe profits it makes in the UK as being made in the UK by running them through a new UK branch of its Luxembourg company.

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It isdoing this for exactly the reason I mention above political pressure.Look at the notes to Amazon's 2014 accounts, says accountant Baker Tilly, and you get the idea.

"In addition to acknowledging the public and political pressures to which they have subjected themselves as a result of their tax planning strategies", Amazon recognises several specific threats: there is a transfer pricing challenge in the US, an EU Commission investigation into arrangements agreed between Amazon and the Luxembourg authorities and the OECD attack on corporate profit shifting.

Since then the pressure hasn't exactly eased: the UK diverted profits tax came into force in April this year. Add it all up and "from Amazon's perspective, it's likely that corporation tax at 20% on the audited profits of a branch operation look like a better risk than a DPT liability at 25% of a figure determined by HMRC, which Amazon then has to contest."

We won't know for a while how much extra tax this all means Amazon ends up paying in the UK (possibly not much given that Amazon isn't exactly a profit making machine). But what I think we do know is that, while it certainly isn't over, the tide is turning in the battle between big companies and tax authorities.

More evidence of this came in the FT this morning.It seems that, while one in six of the world's largest firms are either based in a tax haven or have a majority-owned subsidiary in one, the proportion of MSCI World companies with the latter has "actually fallen" from 10.8% to 7.1% in the last two years. According to MSCI, this is because the "regulatory spotlight has intensified". Amazon has a history of being a first mover in markets. It looks like it might be this time too.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.