Amazon to curb Luxembourg tax schemes: a sign of things to come?

Amazon’s Luxembourg offices. They are little, but their accountants call them huge. What exactly happens behind that diddy little door?

Last Saturday The Guardian broke a story about the U.S. multinational Amazon:

“From the start of this month the online retailer has started booking its sales through the UK. . . The group made $8.3bn (£5.3bn) of worldwide sales from British online shoppers but for 11 years all these internet transactions have been booked in Luxembourg.”

Now that is a big, and welcome, step. It reportedly paid just £4.2m in tax in 2013 on £4.3bn of sales, which seems very low indeed from where we’re sitting. Although Amazon pays some tax in the U.S. where its headquarters lie – a 9.3% effective Federal corporate tax rate from 2008-12, according to CTJ, it tends to use transfer pricing and other shenanigans to shift all its worldwide profits into tax havens and dodge tax in a wide range of other countries.  And lets’ not forget: these tax strategies aren’t necessarily ‘legal’ and so we prefer to avoid the term ‘tax avoidance’ – as a rule of thumb, call it ‘tax cheating.’ (To understand why, see this.)

The Guardian continued:

“The move will allow Amazon to avoid being caught by chancellor George Osborne’s new diverted profits tax, which came into law from April. It imposes a punitive 25% tax on groups deemed to be artificially routing profits overseas.”

But in fact, it’s a broader story than this. As the New York Times reports:

“In a move that could put pressure on its rivals to follow suit, Amazon will start paying taxes in a number of European countries where it has large operations, instead of funneling nearly all its sales through Luxembourg, a low-tax haven.”

Low-tax haven is a polite way of putting it: this is a place (in league with the likes of PwC and other large accounting firms) that has made a business model out of abusing other countries’ tax systems and viciously attacking whistleblowers and journalists who have had the temerity to serve the public interest by exposing these abuses.

Which way is this going? Well, our experience is that the political mood — and we’ve been watching closely — seems to be consistently moving in one direction: against the abuses. As public understanding and knowledge of this global scandal continues, we expect this trend to continue. The financial website Seeking Alpha, looking at the Amazon story, just wrote:

“Amazon’s move could be a sign of things to come: Apple, Google, Microsoft, Starbucks, and a slew of other U.S. multinationals have also come under fire for their use of tax havens to cut their EU tax bills.”

If that’s so, it’s long overdue.  The economic, moral and political case for this is unarguable.

The rest is greed, lobbying by large accountancy firms hawking tax cheating products, the nonsense of shareholder value, and politics. Let’s see which side of that equation the other big tech giants decide to fall. And Big Pharma. And the rest.