Another corporate tax dodge

This is, I suppose, the time of year for things to come back to life, and stories of corporate tax avoidance are among them.  It is reported this morning that online retailer Amazon pays no corporation tax on profits in the UK, despite sales revenue of more than £3.3bn.  Is a company of that scale really operating at a loss?

For the answer, we follow the trail to Luxembourg, where Amazon has its European headquarters.  In Luxembourg, Amazon generates revenue of €7.5bn (£6.5bn), produced by a staff of 134.  In the UK, however, 2,265 people produce a revenue of only £147 million, which amounts to 0.13 per cent of what their Luxembourgeois colleagues each manage.

The reason is not that the workers in Luxembourg are more than 700 times more productive, but that Amazon has organised its corporate structure in such a way as to ensure that the profits are declared in the lowest-tax jurisdictions.  This is legal, but it can’t be right.

This website argues that profits should be declared (and taxed) where they are earned and not where tax lawyers can contrive them to end up.  That way, different countries can set their own tax rates, preserving a national power rather than creating a European one, without stealing tax revenue from each other.

There is an argument that tax rates should be harmonised, which appeals to people who want to avoid the possible downward effects of tax competition, but which also creates a centralised decision about tax rates rather than a decentralised one.  What both of these arguments have in common is that they reject the notion that taxation is a matter of national sovereignty, recognising that taxation of cross-border companies is something that different countries have to address together.

If we don’t do this, and insist instead on retaining the notion of national sovereignty in the context of tax, the people who benefit are the people who run those international companies.  They can manipulate their corporate structures to transfer profits from one jurisdiction to another, thereby gaining a competitive advantage over companies that are loyally based in one country only.  And the people who want to cripple small domestic businesses in this way have the cheek to call themselves patriots!

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