Kathy Heslop's picture

Mega Monday and Tax Avoidance!

ByKathy Heslop on Dec 02, 2012 / Comments

As the thematic shopping sequence continues in the approach to Christmas, Mega Monday (3rd December) is the next window opening in the Online shopping calendar and forecasts are optimistic.

After the buzz of last week's Cyber Monday, which saw a record hike in year on year sales of 28.4 percent in the US, Mega Monday is the UK's equivalent hot on it's heels and fortuitously this year, it follows pay day for the UK population. Credit agency Experian, is anticipating that there will therefore be 115 Million visits to UK retail sites this Mega Monday, a 36 percent rise on last year sales.

Amazon.co.uk are causing eye-rolling this year though. Currently one of the centre-stage players in the media storm about alleged tax avoidance, its MD, Christopher North recently said that: "Monday December 3rd could be the busiest day in the history of Amazon.co.uk, and we're preparing for it by hiring more than 10,000 seasonal employees across our eight UK fulfilment centres." Perhaps a public statement made to detract criticism from its tax practise.

The fact is that Amazon may well be operating within the law, but you can bet that it follows extensive and expensive tax planning advice, sought solely and deliberately to work around the current taxation laws, in order to minimise tax contributions made in the UK and to bank as much as their profits off shore as possible. They may be hiring more staff to process UK orders, but these UK based orders, from UK residents for goods to be delivered to a UK address, are primarily orders invoiced from Amazon's offshore, (outside the UK taxable territories) processing company - EU SARL. In other words, the company's off shore tax haven.

Therefore, this spike in UK Christmas spending that UK citizens will indulge Amazon UK with, will not go towards helping the British economy at all. In fact, it damages it. As Ve Interactive's Co Founder & CEO explains:

"When these supplies are made from SARL, for the most part there is no VAT charged, since it is a supply from outside the UK and therefore not vatable. That's 20% less sales tax going to the government.

However, Amazon are still pricing their goods at a familiar retail price, which might be found on the high street to include VAT. So Amazon SARL see effectively a 20% lift in revenue and it would be fair to presume that the consumer imagines that there is VAT on the purchase. A UK based company supplying a customer directly could not compete with Amazon's offshore VAT loophole and are effectively receiving less cash flow than Amazon are.

When it comes to profit, it's easy to form a hold co outside the UK and supply in the UK, without paying tax on profits and admittedly this is a loophole that HMRC needs to fill. This practise isn't even allowed in Monaco today. Supplies in Monaco to Monaco residents are taxed in Monaco and not more than 25% of international trade is allowed for Monaco SARL companies. But profit from UK supplies should be taxed in the UK unless it is a service rendered from outside the UK, like supplying Canadian Maple Syrup. It is simply ironic that one can purchase British Olympic memorabilia on Amazon featuring the Union Jack, but no revenue will make it to the UK treasury in either sales tax or barely a minute amount of profit tax. All in all, if you are trading in the UK to sell goods and services to UK residents with a .co.uk domain, you should not be allowed to hide from consumers that you are actually trading as an offshore company.

Consumers and businesses beware that a). you do not have the same consumer rights if it came to it, b). your purchase is not helping the UK economy at all, and c). our democratic economy means we all play by the same rules and that's the only way for a taxation system to work."

Let's hope Santa brings Amazon a big bag of morality this Christmas and let's hope HMRC wakes up, and gives Amazon some extra Christmas 'stuffing,' by insisting that Amazon's UK income is treated as 'UK income,' and therefore the whole UK economy gets to see the benefit of UK consumers' Christmas spending with them.