The UK court ruling will do nothing to Amazon’s tax plans



Tom Bergin at Reuters is one of those who continually bombards us with stories about how the big tech companies are just such tax-dodging bastards. Not to the point of being anything less than impartial, of course, but I always get the feeling that behind some of the stories there’s a hope that said bastards are about to get theirs. Sadly, that same reporting doesn’t seem to be wholly and entirely informed about the way that tax law works.

A case in point over this weekend:

Amazon’s tax affairs could come under more scrutiny in Britain, tax experts said, after a judge questioned whether it really was organized in the tax efficient way it said it was.

Oh, really?

In addition to denying infringement, Amazon said only its main European operating subsidiary, Luxembourg-based Amazon EU Sarl., and not the group’s UK subsidiary, Ltd, should be a defendant.

Amazon argued Ltd had no case to answer because Amazon EU Sarl ran the UK business from Luxembourg, and that the British subsidiary simply provided services such as warehousing to the Amazon group.

This structure is also the basis of Amazon’s claim that its retail business doesn’t have a tax residence in Britain — and that therefore, all revenues and profits should be declared in low-tax Luxembourg.

But the judge said Amazon’s depiction of the role of the UK unit was ‘wholly unreal and divorced from the commercial reality of the situation.’


But there’s a problem with this contention from the judge. While the law is indeed the law, there are various levels of it.

To explain a little more: Amazon’s European set up is quite simple. Everything is actually sold by Amazon in Luxembourg. All of the warehouses and so on around the continent are owned by other subsidiaries of the company. Sales all come out of that Luxembourg office with its lovely low profits tax rate and low VAT rate. That second being important on digital goods, where the VAT rate applied is that of the selling location, not the destination, as is the case with real goods.

Now, whether this will actually stand up in law depends on the definition of a “permanent establishment.” It’s not entirely clear cut but essentially, are you really running your UK business from the UK? In which case the UK will have some profits tax thank you very much, whatever you might say about trading from Luxembourg. And who determines what is a permanent establishment sorta depends: upon which level of the law is doing that defining.

Yes, it’s all one law but UK law often operates as “Common Law.” That is, the precedents built up over the centuries as the same or similar question have come before the courts. And if Amazon had a permanent establishment in the UK or not we could certainly try to determine it in this manner. What did past judges think and what do current ones think on top of that? And they do, in a manner of speaking, have the ability to say “come off it, that’s ridiculous.” Which is what our judge is doing here.

However, the ability to look to the common law is overridden by statute law. For the obvious reason that our elected representatives might think that precedents built upon four centuries of prejudice (say, in the matter of marriage being only between a man and a woman) need to be reset. And in this case we do have a matter of statute, the double taxation treaty between Luxembourg and the UK. Sure, those Amazon warehouses sure look like a permanent establishment and under a common law interpretation we might even declare that they are. However, that treaty reads:

(3) The term ‘permanent establishment’ shall not be deemed to include:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

We have an express statement, in statute, that warehouses and logistics chains do not lead to the creation of a permanent establishment.

So, there’s going to be no damn change in the taxation of Amazon then. From Bergin’s piece:

David Quentin, a lawyer with Stone King who has advised campaign group the Tax Justice Network, said the ‘tortfeasance’ rules that applied in the Lush case were different to those that govern tax cases.

Hence, the ruling previously reported in Private Eye magazine did not set a precedent that would overturn Amazon’s tax arrangements, he said.

Sorry, Tom, but when the campaign group shouting that Amazon should be taxed more says that this case will make no difference it’s pretty certain that it’s going to make no damn bit of difference at all.

Better luck with the next story.

[Image via Thinkstock]