How does Amazon minimise its tax payments?

Jeff Bezos Amazon

Filings show that despite sales of over £3.3 billion last year online retailer paid no UK corporation tax on profits

LAST UPDATED AT 13:51 ON Thu 5 Apr 2012

Amazon, Britain's biggest online retailer, is reportedly under investigation by the UK tax authority. Despite generating £3.3 billion in sales in 2011 the company paid no corporation tax on the profit, The Guardian claims.

Amazon disclosed the investigation in a filing with US financial investigators. With recorded sales in the UK of over £7 billion in the past three years, how has Amazon managed to minimise its tax payments?

AMAZON.CO.UK IS NOT A 'RETAILER'
The British arm of Amazon is regarded as a "service company" rather than a retailer, says The Daily Telegraph. As such it provides services to its European headquarters, which are based in Luxembourg, where the tax rate is lower. Ownership was transferred there from the UK in 2006.

WHAT DOES THIS MEAN?
All payments for books, DVDs and other services go directly to Luxembourg. The latest (2010) accounts show that the Luxembourg side of the operation employs just 134 people but has a turnover of €7.5 billion. In the UK, which is classed simply as a delivery service, 2,265 people were employed, and turnover is put at just £147 million.

WHY DID AMAZON MOVE TO LUXEMBOURG?
The US parent company has suggested it might have been done to reduce the group's tax bill. In a 2006 filing, the company referred to "establishing our European headquarters in Luxembourg, which we expect will benefit our effective tax rate over time".

DOES AMAZON HAVE AN ADVANTAGE OVER UK-BASED RETAILERS?
Yes. For example, Amazon.co.uk can charge VAT on the lucrative ebook market at the Luxembourg rate of 3.5 per cent. British-based retailers have to pay 20 per cent. This is a big deal as this rapidly-growing market is projected to be worth £500 million this year – up £350 million on last year.

Philip Jones of The Bookseller says that the British Government is being lobbied to reduce VAT on ebooks to nothing - in line with printed titles. This would overnight give UK-based retailers a 3 per cent edge on Amazon. · 

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How are they allowed to get away with it?  I can't buy alcohol or tobacco from other EU states without paying full UK duty.

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