The UK’s largest online retailer, Amazon, made sales of over £3.3 billion in 2011 but didn’t pay any corporation tax on the profits they made in the UK*. Frances and Keith have run the Warwick and Kenilworth bookshops for the past ten years. They don’t believe that Amazon should be able to dodge huge taxes and undermine local businesses who pay their fair share of UK tax.
I signed the petition, sent to me by online lobbyists Change.org. The passage above just about sums up the lengthy argument they’ve put forward on behalf of the bookshop owners, and I love small bookshops and want to see them survive and thrive, which a few are still doing.
But it’s a hugely complicated issue that can’t be resolved just on the basis of an emotional appeal to save the little guy from the global corporatist villains.
For a start, Amazon sells a lot more than just books. And it’s more than just an aggressive mail order company: it’s also a major internet portal for retailers. My most recent purchase on Amazon.uk was a CD, naturally a jazz recording, by the saxophonist Wayne Shorter. I didn’t buy it from Amazon, I ordered it through Amazon off their website from one of their many thousand third-party resellers. It arrived two weeks later by post, courtesy of a distributor in Taiwan acting on behalf of a Japanese recording company that appears to have a contract to remix and distribute old recordings by artists on the Blue Note label, based in New York. Blue Note is, in turn, no longer an independent jazz specialist, but is now owned by Columbia, which is part of the worldwide Sony Corporation.
So the £12.95 I paid Amazon for this classic 1965 album (with bonus track!) will be accounted as a very tiny contributor to their £3.3bn UK turnover. The actual profit margin on it in the UK will be even more infinitesimal, as the commissions and royalties trickle outwards across frontiers; some of the money finally – one hopes – reaching the bank account of Mr Shorter himself, thence possibly to help swell the coffers of the US Internal Revenue Service by a cent or less. Meanwhile, someone will have paid a little tax in Taiwan, and someone else in Tokyo. Why should it all end up in Whitehall, just because I live in Britain?
Now, Amazon.uk is apparently registered in Luxembourg, so if any corporation tax is payable on profits they make from sales in the UK it will be paid there, in one of the lowest tax regimes in Europe, where their profits are declared. This is still a perfectly legal arrangement. While it seems unfair on Amazon’s smaller UK competitors, such as the Warwick and Kenilworth books empire of Keith and Francis Smith, who have opted to pay their business and personal taxes to HM Government in a higher tax regime, nevertheless it is only fair and logical to ask what they mean by ‘UK sales’, in a commercial world where the very idea of national boundaries is virtually obsolete?
Amazon will argue, have argued, that they contribute £millions to the UK economy in other ways; direct ways in which Keith and Francis perhaps don’t so much. They employ thousands of salaried people who pay income tax, National Insurance and VAT to the government; they pay business rates on their vast warehouse premises, and support local retailers; they keep the Post Office and the courier companies and all their employees, the manufacturers of brown cardboard envelopes, alive; there is a service benefit to British companies advertising on and selling through their massively subscribed website, and a valuable free information resource is provided. They contribute significantly to the national GDP, whose flickering health in turn keeps the rates of interest the government pays on its borrowings among the lowest in Europe…
It is possibly disingenuous to argue that this should absolve them of having to pay corporation tax as well, but the difficulty of determining exactly where their profits are being made means we need to think laterally about more up-to-date solutions to the problem of global competition. Just because an order is placed in the UK, it does not mean that all the cash generated in that transaction is paid, received or profited from in the UK. Consequently, not all the tax owing should be paid in the UK. How would you distribute the liability for collecting it, without incurring huge accounting and transfer charges? Maybe the whole idea of corporation tax is obsolete and a barrier to free trade and we should just abolish it and enjoy the many incidental benefits of further inward investment as a result?
Some years ago, I noticed that there was a section in Yellow Pages for Walking-Stick Ferrule Manufacturers (a ferrule being the little bit of protective rubber or metal that goes on the end of the stick.) There were two listed. The following year, there were none. They had become extinct. This will not happen to booksellers quite yet, because they are (mostly) adapting to the new paradigm in creative ways, for instance by becoming third-party resellers with Amazon, or by running their own online mail order businesses. Of course, they cannot compete on buying power, but they cannot compete with Tesco either on that score, other than by becoming niche players.
Meanwhile, Amazon is doing its damnedest to get rid of books altogether, in order to support its sales of Kindl readers and its allied online publishing interests. Rather than their tax-dodging ways, their promotion of e-reading will probably be what drives the book trade (and libraries) underground in the end.
Pssst… wanna buy a good book? Tax Accounting for Dummies?
I have, however, eagerly signed a petition against Amazon’s punitive, sub-minimum-wage employment policies. I spend about £1000 a year with a company that forces its poorest employees to take unpaid breaks and hit impossible picking targets, and stops their wages if they are seconds late back from the toilet. I buy from them, but I would not work for them. What a hypocrite, I know.