HMRC believes Amazon has no fixed place of business in the UK. Perhaps it needs to look again at what goes on in Berkshire
The way companies are taxed has changed with the way corporations have developed in the last 100 years, expanding beyond national borders. The emergence of substantial international trade in the 1920s prompted countries to agree tax treaties in an attempt to ensure profits were appropriately taxed where they were generated.
Despite these efforts, tax engineers have caused problems for exchequers around the world for decades as they have built clever corporate structures to mimimise tax bills for their multinational corporate clients. The advent of the internet has opened up a new front in this battle for tax fairness.
A new generation of cyber-corporations have been able to tell the taxman they do not carry out taxable activities in territories from which they generate billions of pounds in sales.
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| The Amazon distribution warehouse just outside Milton Keynes. |
The British tax authorities appear to agree that Amazon can avoid paying corporation tax on the profits it made on the £12bn of sales the internet giant has generated in the UK over the last four years.
Whether Amazon EU Sarl, its Luxembourg operation, amounts to a "permanent establishment" in the UK that can be taxed by HMRC is down to a combination of laws and accounting protocols set out in double taxation treaties, the HRMC rule book and OECD guidelines.
The Guardian has discovered that Revenue & Customs has four tests it applies to an overseas company to establish whether that company is liable to corporation tax on its activities.
• Is there trading activity by the non-resident company?
• Does that trading take place in the UK?
• Does the non-resident company have a fixed place of business in the UK?
• Is the trade carried on through that fixed place of business? Or, if there is no fixed place of business, is the trade carried on through a dependent agent?
If the answer to all of these questions is yes, then HMRC can levy corporation tax on the non-resident company.
Despite Amazon EU Sarl's extensive activities in the UK, it appears that HMRC inspectors – for reasons we cannot know – have accepted the retailer's insistence that this business is not captured by these four tests.
Amazon EU Sarl trades through Amazon.co.uk, and all purchases made by UK customers are invoiced from the company in Luxembourg. This trade is distinct from the activities of the Amazon UK resident company, which provides only "fulfilment [that is, warehouse operations] and corporate support services".
The Guardian has learned that Amazon EU Sarl trades in the UK by securing contracts with British publishers and traders to provide the crucial goods and services it needs for its website.
The trading takes place in the UK not just through sales made on the website but also through the procurement and development of products and services.
The company indicates on its website it carries out a wide range of activities from his corporate offices in Slough in Berkshire. It says: "UK Corporate Offices – Slough, Berkshire, England. Since 1998, our teams have developed a genuinely British site with the same commitment to customers, cutting-edge technology and rich editorial content that has made Amazon.com such a success. Our Slough teams manage all corporate functions, including buying, marketing, software development, sales and legal."
Amazon EU Sarl appears to carry on its trade through its fixed place of business because book supply contracts, setting out the terms on which publishers will sell books to Amazon, are negotiated by executives based in the Slough head office.
The Guardian has seen extracts from a contract that confirm it is made between the publisher and Amazon EU Sarl.
However, a UK publishing executive, who asked not to be named, confirmed that the contract had been negotiated, on behalf of Amazon EU Sarl, by staff based in Slough.
"The contract may be with Luxembourg," the executive said, "but it is the people from Slough who thrash out the crucial details of the contract such as the discount we agree to give them. There are also people in Slough who are charged with overseeing that the contract is properly executed.
A spokesman for HMRC said: "HMRC cannot comment on specific cases for legal reasons. A non-resident company is only chargeable to UK corporation tax if it is trading in the UK through a permanent establishment. Both UK legislation and international tax rules agree on this."
Significant elements of Amazon EU Sarl's trade in the UK provide content for the website by negotiating contracts with publishers and traders. HMRC's own manual says: "One of the ways in which a permanent establishment of a foreign enterprise may be brought into existence is where an agent … acting on behalf of the enterprise has, and habitually exercises … an authority to conclude contracts in the name of the enterprise."
The existence of a permanent establishment would bring all Amazon EU Sarl's activities in the UK into the UK corporation tax net because the contracts for purchases made from Amazon's UK website would be deemed to be made in this country.
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Article source : http://www.guardian.co.uk
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