Grandpa Jez And The TJN Terribly Confused About Amazon’s Tax Payments

Jeremy Corbyn has sent Amazon a 25th birthday card insisting that it should be paying more tax in the UK. He’s also insisting that it should be paying the staff more. Can’t really be both now, can it? If you pay the staff more then there are fewer profits to pay tax upon. The Tax Justice Network gets even more confused on the issue.

Amazon UK paid only £1.7m in corporation tax in 2017, its most recent annual public filing at Companies House, as pre-tax profits tripled to £72m. Turnover at its British business, which handles the packing and delivery of parcels and functions such as customer service, rose 35%, from £1.46bn to £1.98bn. Corbyn’s birthday message to the world’s richest man, who has just finalised the world’s biggest divorce settlement, worth $38bn, says: “Dear Jeff. Happy Birthday. You owe the British people millions in taxes that pay for the public services that we all rely on. This year, pay your fair share of taxes, give your hard-working staff a pay rise and respect workers’ rights. Many Happy Tax Returns, Jeremy.”

One of the reasons for that low UK tax bill is actually that the company pays the workers more. It’s an oddity but it’s there in the tax system. If the workers get paid in cash, as wages, then reported profits are lower and so, obviously, is the tax bill. However, if the same staff get paid the same amount of money but as equity, shares, in the company that’s not quite what does happen. Reported profits will be higher – an equity distribution isn’t included in costs at this point. Then there’s a tax credit that goes against that equity distribution. Thus the tax bill is lower.

The major effect of this is to make the link between reported profits and tax paid larger if the staff are paid in shares of the company rather than cash. But we want the workers to start to own the company, don’t we? Isn’t that actually public policy, that we do want this?

Not that we expect Grandpa Death to understand this. The Tax Justice Network though, yes, we rather do expect them to have a clue:

Robert Palmer, the executive director of Tax Justice UK, said: “People are fed up with companies like Amazon playing the system to slash their tax rate. We need to fix the broken global corporate tax rules that allow massive companies to pay little or no tax.”

Trump has already fixed the global tax system. It used to be that offshore profits in an American company – as long as they remained offshore – were not taxed by the US. So, dodging around Ireland, Holland, Bermuda, created a vast pile of untaxed profits. Trump changed this – US company profits are now taxed by the US whether they come onshore or not. The fix to the global tax system has already happened.

But there’s another, and deeper point here too. A usual complaint is that companies don’t do the investing. They take the profits and just hand them out to shareholders. This is bad, companies should retain their profits to invest and thus make the future richer. Of course, this is economically illiterate to begin with – what are the shareholders going to do with the cash? Often enough, invest it again. But OK, ignore that. So, what does Amazon do? It doesn’t pay out to shareholders. Stock buybacks are enough to cover those share awards to the staff, no more. Doesn’t pay a dividend. What it actually does is invests everything it makes back into the business.

It, as far as it can, also does this within the same year. Money made in January is invested by February perhaps. This means that they’re not even declaring profit – historically they didn’t at least. But they are investing loads and loads and loads. Amazon’s actually doing what the demand is all should do – stop paying out to the capitalist plutocrats and get on with investing to make people richer. OK, Amazon does this and yet they’re still complaining.

Sigh. If it weren’t for double standards they’d have none at all, would they?

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Leo Savantt
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Leo Savantt

The real reason Corbyn is taking Amazon to task probably has little to do with tax, but is more likely driven by the fact that Amazon is successful. Providing a service that people want and are happy to pay for in the private sector just shouldn’t happen in Marxist la-la land, it goes against the grain.

Matt Ryan
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Matt Ryan

A large part of the problem is John (and Jane) Doe don’t understand so take away soundbites like this. If people understood the reasons then this tosh wouldn’t wash.

Pity you can’t legislate against stupid…

Quentin Vole
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Quentin Vole

As I commented on Jezza’s Twitter feed, that ‘owe’ is having to do a lot of work. Answer came their none, of course.