The taxation rules for online retailers is a topic of much debate – particularly surrounding e-tail giant Amazon – and was recently inflamed by comments made by the Chancellor at the Tory Party conference. But implementation of a fair levy is more complicated than pointing at Amazon’s topline and expecting it to cough up; with Brexit looming, any proposed ‘digital tax’ must be carefully considered else risks backfiring in the long term.
On the surface, it seems a logical move to increase Amazon’s tax – and almost incredulous that they haven’t been paying more already. Amazon UK services – the division responsible for fulfilment and corporate support services – saw annual revenue rise 36.0% in 2017 to £2.0bn, and an operating profit rise of 200.2% to £79.8m; however, due to payments to staff in company shares and deferring tax, it paid a total tax on ordinary activities of £1.7m. Its actual UK sales are routed – with the rest of Amazon’s EU sales – through a separate division ‘Amazon EU SARL’ based in Luxembourg – an entity with a €24.9bn 2017 turnover, which is one of the reasons Amazon’s realistic tax obligations for individual EU countries are challenging to calculate.
So the anger of Amazon’s lack of contribution that is coming from struggling high street retailers, burdened not only by corporation tax but also business rates – which contribute £30bn a year to the Treasury – is understandable. Pets at Home chief executive Peter Pritchard argues that Amazon does not pay its fair share towards public services and infrastructure in the UK – indisputable, given Amazon’s extensive use of both through its c.15,000 UK workforce and dependence on roads to support its extensive delivery network.
But there are numerous reservations from both retailers and politicians about launching a tax designed to target one of the most valuable companies in the world, first and foremost that such a tax would directly damage the UK’s global competitive advantage. GlobalData estimates that Amazon accounts for 14.1% of the UK’s total online retail market, and that the UK represents Amazon’s fourth-largest market globally following the US, Japan and Germany. Any increase in tax – coupled with the uncertainty generated by an unclear Brexit position – may see Amazon feel nervous about committing further investment in UK development.
There is also the issue of implementation. Slapping a gross revenue tax, as proposed by the EU, directly onto UK online retailers would likely hurt smaller, developing retailers more than the e-tail giants, paralysing growth and small-business start-ups. And there is always the possibility that any levy would simply be passed on to the consumer, resulting in an ‘online transaction admin fee’ rather than targeting Amazon, similar to Just Eat’s loophole introduction of a 50p all-encompassing admin fee at the same time as the EU’s decision to ban credit card transaction fees.
This explains John Lewis chairman Sir Charlie Mayfield’s recent rejection of calls for a tax on online retailers. He argues that instead, a reduction in business rates would be a better method to level the playing field, as would clamping down on unreasonable employment practices. But while a business rate reduction would undoubtedly ease the burden on physical retailers, it seems an unlikely move for the Chancellor; balancing the retail landscape is important, but not as much as, for example, raising cash for the NHS. And while Amazon’s employment policies have not always been a shining example to the retail world – principally around its warehouse working conditions, both in the UK and US – the pay rise announced this week, a c.20% hike for its c.35,000 UK workers, shows that Mr Bezos is willing to improve corporate responsibility to show Amazon in a better light.
The OECD and its 36 members have struggled to reach a decision on an EU-wide digital tax on gross revenues – currently proposed at 3% as of March 2018 to be applied in January 2020 – and the ongoing debate shows the complexity of the issue. But the UK Government’s hiring of Obama’s former chief economist Jason Furman to ensure ‘fitness for a digital era’, shows the UK’s first step towards making its own online tax regulations – and Amazon will be watching with interest.