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back to article US taxman joins UK politicoes on hunt for Amazon cash

Amazon is fighting the US taxmen over a $234m unpaid bill. The Internal Revenue Service (IRS) told the online superstore in November that it owed taxes in 2005 and 2006, and also challenging its tax deductions, according to a court filing seen by Reuters. But Amazon has countered that the IRS is overestimating how much its " …

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Facepalm

Nothing New!

Nothing new here, just the USA's way of running things.

The poor pay taxes and stay poor, while the rich get richer, so?

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Anonymous Coward

Re: Nothing New!

Same in the UK too. It's basic neo-classical economics and it's the way the world is (for now). We are fed the lie that we need this disparity and we swallow it. The elite wish to keep themselves in power and the poor subjugated. Heaven forfend that there should ever be social mobility, democracy or accountability.

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Anonymous Coward

Re: Nothing New!

At least in the US you can be born poor and then end up as head of state. In the UK that is decided by birth.

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WTF?

Re: Nothing New!

Citation Needed.

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Anonymous Coward

Re: Nothing New!

AC 12:27

>At least in the US you can be born poor and then end up as head of state.

aahhh Ha hahahahahahahahahaha... ahhh, <sniff> haa haaaa.

Yeah, right. Nice one mate!

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FAIL

Re: Nothing New!

@The First Dave Well the Queen IS Head of State. At the moment if she dies and Prince Charles succeeds HE will be Head of State and he was born to be.

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WTF?

Re: Nothing New!

"At least in the US you can be born poor and then end up as head of state. In the UK that is decided by birth."

* but you have more chance of winning the lottery and an 8 year term does horrible things to institutional memory - everybody has to relearn everything ever 4/8 years.

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A question of worth

To Mr Taxman: "These patents and trademarks? They not really worth the paper they're written on. Mere trifles, pay them no mind."

To somone looking to license them: "Prepare to remortgage your company HQ."

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Ninja Accountants

" ...that price comes off the UK subsidiary's tax bill as an expense, .."

No. It comes off the profit figure, hence leading to a proportionate reduction in the tax bill.

Also, the US parent would see a profit of 50p for every box sold (minus selling expenses, whatever they could be made to be). The cost of the boxes to the US parent would be booked as an expense hence the total corporate books would show expenses of £1.50 and income of £0.5 (= expense of £1 plus whatever 'buying expenses' they can dream up). So, that expense can be moved to anywhere convenient for the company. Mix that in with licensing deals involving subsidiaries in a different country and no single tax authority can follow what is really happening.

Welcome to the money merry-go-round, where profit and loss are fluid, complex and sometimes imaginary.

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Anonymous Coward

Re: Ninja Accountants

Also, the US parent would see a profit of 50p for every box sold (minus selling expenses, whatever they could be made to be).

In reality they wouldn't be sourcing the boxes from Amazon US ... the original source of the boxes (and thus the destination of the "profit" on them) would doubtless be Amazon somecountry where somecountry is a place that is attempting to start up a local cardboard box industry and thus will be offering preferential tax rates to companies that wish to deal in cardboard boxes.

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Re: Ninja Accountants

Rubbish. Income and profit are not the same thing. US parent gets income of £1, so the overall expense booked in the group of 50p. Which is, not entirely coincidentally, the actual cost of the box.

Shock, horror, Amazon gets to deduct the cost of something it bought when working out its tax bill! Stop the press!!!

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Headmaster

@frank ly Re: "Ninja Accountants" It is interesting that the shear scale of this kind......

........of behaviour is (relatively) new. However, companies using those kinds of shenanigans are not anything new qualitatively (so to speak). We all remember what a huge success the first Alien movie was (total world wide takings by 2004 had hit $185,000,000 almost 17 times what the film cost to make) and certainly such luminaries as Sigourney Weaver and John Hurt were at the outset feeling pretty pleased with themselves because they were on a percentage. To their utter astonishment and considerable fury Twentieth Century Fox claimed that the film had (when all extraneous expenses had been taken into account) almost made a loss. They had unfortunately not negotiated a percentage of the gross turnover but of the profits. Hence today there is not an actor in the profession who has the clout to be on a percentage who does not insist on a percentage of the gross. Fox' fairly shameless attempt to do an end run round the IRS had ended up robbing the very actors who had contributed to much to the film's success in the first place. The sheer scale of these practices today however are a wholly different level of challenge to society.

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@Pellinor Re: Ninja Accountants

I never said that income and profit are the same thing. Try reading my post - see the mention of expenses? The article (and the post) are not about how to calculate operating profit, they are about something else. Try reading the article to see if you can figure out what it is.

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Re: Ninja Accountants

>Shock, horror, Amazon gets to deduct the cost of something it bought when working out its tax bill!

Or in this case, Amazon-Caymens owns the one-click patent and amazon UK and USA get to pay it $1 everytime somebody orders something.

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Re: @Pellinor Ninja Accountants

@ frank ly: I read the article, and your comment, carefully.

You say that in the total company books (by which I assume you mean the consolidated accounts) the expense would be £1, because there'd be expenses of £1.50 (presumably 50p in the US and £1 in the UK) and income of 50p. That is of course bollocks, to use the technical term, as the £1 cost in the UK would be £1 of income in the US. You've confused yourself with the 50p profit you mentioned earlier.

The article is doing this to illustrate transfer pricing, suggesting that a 100% markup might be applied even though it's a bit steep, and thus save UK tax because the UK's £1 expense is too high: if UK tax rates are higher, then saving tax on £1 in the UK is worth paying tax on £1 in the US. That's basic transfer pricing.

What you've done is suggest that transfer pricing can somehow generate expenses out of thin air: the 50p actual cost has magically turned into £1 of tax deduction. That doesn't happen: all you can do with transfer pricing is shift profits around a group. You mention other "buying expenses", but again, you can't magic them out of nothing without having some profits arise elsewhere.

Except of course HMRC is very hot on such things and would come down like a ton of bricks on anyone who tries a 100% mark-up on low-value high-volume goods, and extra fees for no good reason. It's one of their big earners: they don't bother checking every year, they just come along every five years or so, and if they're not happy with the intra-group prices they reopen earlier years and charge penalties and interest on the extra tax.

Or at least, that's what's happened in my 15 years as a Chartered Tax Advisor advising international groups on corporation tax, transfer pricing, IP, and financing. Every group I've come across has been very nervous of HMRC or the IRS coming along, and taken pains to use reasonable prices. Top end of the "reasonable" range, maybe, but with a tax provision held back in case HMRC challenge them.

Perhaps my experience is untypical - what's yours been like?

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Re: @Artic fox

I believe that Hollywood has a term for those shenanigans - creative accounting.

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Happy

"It is interesting that the shear scale of this kind......" I hope I may be forgiven for.....

.........contributing another story from film history of the same period. When a certain Mr Lucas had persuaded Alec Guinness to take on the role of Obi-Wan Kenobi in the original Star Wars film he discovered at a vital point in the project that he was running out of "cash up front" and was forced to beg Sir Alec to accept a percentage of the gross instead - to which Sir AG most unwillingly agreed (a story that he told against himself many times afterwards) . The rest is history as was Sir Alec's very comfortable retirement.

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Headmaster

Re: @frank ly "Ninja Accountants" It is interesting that the shear scale of this kind......

"Fox's", because it is a proper noun.

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kbb
Joke

Re: Corporate tax dodgers

None, but MPs would be able to award themselves that little bit higher pay rise.

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Re: Corporate tax dodgers

It's the same for us - our UK companies make profits abroad (probably paying little or no tax) and bring them back to the UK - you can expect to have it both ways.

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FAIL

Re: Corporate tax dodgers

You must be new here. The "profit" never comes back to the UK, even with large UK companies. It's all funnelled offshore to holding companies in friendlier jurisdictions like the Cayman Islands, Bermuda, and Switzerland.

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Anonymous Coward

Re: Corporate tax dodgers

Actually the profit does come to the UK, in the form of management charges. This is because the lax regulation of the CIty makes the UK a top destination for financial fraud.

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Unhappy

Re: Corporate tax dodgers

It would be exactly what it is now. If every company in the land paid all the tax that was due, the country would be no different, with the exception that politicians would have awarded themselves their 50% pay increase.

Do not underestimate the capabiltiy of politicians for pi$$ing money out of the UK's coffers.

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Re: how much our personal tax could be cut

If we taxed them properly, then you could probably cut the tax rate of the poorest amongst us to 0%

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Anonymous Coward

Re: how much our personal tax could be cut

You could, but the tax allowance is already pretty high and the Lib Dems have pushed the government to increase it.

But what use is a tax cut if you can't get a job?

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Anonymous Coward

Re: how much our personal tax could be cut

@Crisp

I'm fairly certain that a good proportion of the 'poorest' people, with incomes at or below the Lower Earnings Limit for PAYE, and qualifying for housing benefit, child tax credits et. al, probable have a negative tax rate. This may even be the case if you take VAT into consideration.

Whilst I, in my white collar skilled job, single income above the recent Child Benefit threshold household, get shafted with every change to the tax system.

OK, I still earn a lot, and I know I am more fortunate than people who have lost their jobs, but my pre-tax income has gone down in the years since 1998, and I've probably lost £1K a month of my post-tax income through reduction and tax changes. Try removing >20% from your household budget without moving house, and you may understand why the squeezed middle are squeeling.

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Anonymous Coward

Re: Corporate tax dodgers

Your personal tax bill will be exactly the same, you'll just pay more for stuff you buy off of Amazon. Remember companies don't pay tax, people pay tax, either the customers or the workforce.

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RE: Re: Corporate tax dodgers

Not quite correct, as I think you left out something, I corrected your comment below:

None, but MPs would be able to award themselves that little bit higher pay rise and a larger expense account.

FTFY

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Perhaps it would just be better to charge a higher rate of VAT - companies cannot (so easily) avoid it and it's based on what people actually spend - not so much on what they earn or any profits they make. For instance would you be happy to pay a higher rate of VAT on everything you bought if income tax were reduced.

The problem is countries want to attract companies to set up there - why would a company set up in the UK and pay 20-odd percent corporation tax when it could setup in Ireland, Netherlands, Switzerland etc. and pay much less - with the friendly EU it's made all this possible.

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Facepalm

1. Companies don't pay VAT. At least, VAT-registered ones don't (which is everyone with a turnover - not profit! - of more than about £10K/year). VAT is a tax that Government outsources to companies to collect from us, citizens.

2.No, I would not be fucking happy. VAT is a regressive tax which hurts low incomes much harder than it hits high incomes.

What a stupid, stupid idea.

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A tiny nitpick - companies may not have to pay VAT on goods they purchase to then sell on, but they do however have to pay HMRC VAT on services that they provide.

For service based VAT registered companies (like my own limited company), HMRC operates a VAT flat rate scheme whereby you invoice the full prevailing rate of VAT, but you pay to HMRC a lower rate of VAT to offset the fact that you are still expected to pay VAT on any supplies you purchase.

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Anonymous Coward

1. Yes they do - they effectively pay VAT on their profits. They charge VAT on their sales - reclaim VAT they pay on purchased and pay the difference to the government.

2. Higher income households spend more.

But you are happier with a tax that corporates can easily dodge instead of one that would be much harder.

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FAIL

@AC -

1. That's nonsense. Charging VAT on sales and reclaiming purchased VAT would be zero sum if the two were levied at the same time but since they're not, the cashflow actually makes a VAT registered money in the long term.

2. Companies don't pay income tax. And if you increase the VAT on say, petrol, that leaves somebody on £5K paying exactly the same tax as somebody on £500K - it's hard to drive one hundred times as far or eat one hundred times as much or watch one times more films or whatever.

Stop kidding yourself.

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Happy

What a stupid, stupid idea.

Companies don't pay vat they also don't pay corporation tax (even when they don't jump through hoops to avoid it)

The only person who pays corporation tax (for the entire chain) is the end customer (or the staff at the company in the chain which then effects how much they buy).

Whether it'll be possible to scrap corporation tax and for all companies in the chain to adjust their prices 'fairly' probably wouldn't happen. But then if a company in the supply chain starts gouging it's customers then a competitor could jump in.

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Re: What a stupid, stupid idea.

Thank-you.

So few people understand this.

Shareholders also pay by means of reduced dividends - or in other words pensioners pay in reduced pension (compounded)

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Nope, the UK threshold is £77k a year, not £10k. And it's only taxable supplies (which admittedly is most turnover).

And companies do suffer from VAT. You have one customer with sales of £75k, no VAT to charge, you keep £75k. I have two identical customers, sales total £150k, I have to pay £25k of that out in VAT (I can only bill £125k + VAT maximum, or they'll go to someone unregistered for the cheaper price). If the cost per customer is the same, I've lost £25k off the bottom line.

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dogged: VAT is only zero sum if you receive the same or less in VAT on sales than you expend on VAT in purchasers. Companies that spend more than they sell don't tend to last that long. Therefore, successful companies do pay VAT.

VAT is a tax on consumption. Someone on £5k only pays the 'same tax' as someone on £500k if they consume the same amount. People on £500k do tend to consume more - the Jag uses more petrol than the Mini, but it is still a regressive tax, because even though the wealthy consume more, their proportion of the overall consumption is dwarfed by the (meagre) consumption of everyone else.

The main issue is the tax code, which has grown massively since the mid 90s. There are far too many loopholes and special conditions that the top few percent no longer pay their fair way, and companies (legally) avoid the majority of their taxes. Raising VAT would not help, simplifying and rewriting the tax code would.

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Stop

But you can register at any turnover over £1500, I believe. And most do.

And your example is reasonable IF you're not selling to another VAT registered company (in which case, they don't care about the VAT surcharge) AND if your raw materials/labour/contractors/bills are not subject to VAT. Which would make you pretty much unique.

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Tom 38: VAT is exactly zero-sum for businesses because you reclaim what you spend and pay out what you charge, minus interest you can shuffle on funds held for repayment.

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Windows

The downvoter has never run a business, I see.

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Which would make you pretty much any small service business with a few employees selling to the general public.

Gardeners, window-cleaners, IT consultancies, accountants, builders, decorators, plumbers, personal trainers.... not all that unique, really.

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More VAT?

No, that doesn't work, only the consumer pays VAT. Schools etc count as Consumers.

Purchase Tax as per 1940s to when VAT came in was calculated on the Wholesale price. Retailers often displayed the price ex Tax. Consumers largely paid it.

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I down voted because I do run a VAT registered business...

VAT isn't zero sum for business.

Some export oriented businesses get to reclaim more VAT than they make from sales...

Services business'es ie. the typical contractor, will invoice for more VAT than they paid out for supplies, hence will pay VAT.

The only business for which VAT is zero sum is a business that buys and sells at the same price ie. no mark up; and that is a business that won't be in business for very long...

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Financial merry-go-rounds

It's good to see that the investigations into the antics of Enron et al have produced a system where finances are much better regulated and all dealings are transparent and above reproach.

NOT

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What about Starbucks Swiss coffee beans?

Are thery going to look at that aspect too?

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jai
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boycott!!!

Right, that's it!!

From now on I'm going to buy all my electricals from Comet... ah....

Well i'm going to get my music from HMV then.... oh....

Well damnit, at least i can get my DVDs from Blockbusters.....

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Hypocitical

The MPs can bitch and posture all they like; but they are the ones that passed the various Acts that define the tax rules; the companies are simply using the rules to their advantage.

Worse, the MPs are among the very first ones to make use of any loopholes in the tax laws.

When they finally do something about the mess that they (or their predecessors) have created, then I might have some interest in their views; until then, they can winge all they like and I still won't care.

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I'm not so sure it is that easy to create tax laws that are totally watertight and anyways who knows what people were involved in the law making, vested interests perhaps.

The other problem is the not so level playing field, the large corps with international connections can get away with far more than simple local based companies. It could be argued that the recent bankruptcies on our high streets was in some part created by the power of online stores being able to out price the high street by reason of their lower tax payments.

I'm certain that Mr Bezos has not entertained the thought that once he has eliminated the biggest high street names, he can begin to ramp up the prices on Amazon. Then the profits will become truly enormous and without any hindrance via the tax laws.

I'd like to ask everyone here, where would you rather see this money? In the Caymans serving a very small % of the worlds population or in your country being used for your benefit. Even if there are losses on the way it's money we never had in the first place.

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Its so easy nowadays to vote with your hard earned. There are plenty of UK based online retailers that can compete with Amazon on price and pay all their taxes here, just do some searching about instead and hurt these big companies where they take real notice on their balance sheet.

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