posted on Tue, 11/13/2012 - 22:03 by
Internet based businesses Amazon and Google have landed in hot water with the UK tax office this week, after it was discovered that both online companies are paying considerably less tax than is due.
Head of Google UK and managers from Amazon were grilled by UK Members of Parliament (MPs) yesterday, after they were infuriated to find out that some of the world’s biggest companies are avoiding tax payments. According to reports, online retailer, Amazon, paid no UK corporation tax last year, despite generating sales of more than £3.3bn across the country. While their global business online friends, UK Google, paid just £6m to the Treasury in 2011, after turning over a cool £395m that year. Both, together with coffee giants, Starbucks, are facing probing by a Public Accounts Committee, which is investigating the global businesses online
But how have these internet based companies been able to get away with it? Well, according to Andrew Cecil, Amazon’s director of public policy, the etailer has paid over £100m in payroll taxes. Yet, it’s more the location of the online businesses that is causing confusion and a question mark over the correct payment of taxes. During the Public Accounts Committee investigation, top managers at Amazon have maintained that their UK operation actually operates as a service provider to the European company, rather than an independent UK company and the European headquarters are based in Luxembourg.
According to legal opinion, the law depends on what each global business sells online. Those companies that are selling ‘actual’ products – for example, the books and electronic goods, as sold on Amazon – must choose which country these items should be shipped from. If, as with Amazon, the products are coming from a country outside the UK, in this case the Netherlands, then there is no corporation tax due to the UK tax office. Amazon must simply pay corporation tax in Luxembourg.
Yet, they’re not on their own. Facebook, ebay and Apple have all been the subject of tax avoidance column inches, when their tax bills didn’t add up in European countries. And it’s again in the UK, where the companies are under the most scrutiny. Facebook paid only £238,000 in tax for 2011, Apple paid less than 2% corporation tax on its profits outside the US and ebay has been under investigation for paying as little as £1.2m to the UK tax office.
As the debate continues, it shows that there’s more than just shipping costs that internet based businesses must consider when setting up than just creating a world business online.