Amazon UK Pays $3.7 Million Tax On $6.5 Billion Sales

As Amazon (NASDAQ:AMZN) is hoping for the ability to soon collect U.S. state sales taxes, government officials in the U.K. would rather it focus a little bit more on paying its corporate taxes. Amazon's U.K. operation apparently paid $3.7 million in taxes for 2012, a period when its U.K. sales topped $6.5 billion.

Adding more emotion to unhappy legislators and rivals is a filing that it received 2.5 million pounds in government grants last year, "just ahead of the 2.4 million it paid in corporation tax, the UK form of corporate income tax," Reuters is reporting.

The reason, which will surprise absolutely no one, is an accounting tactic. Amazon.co.uk reported a small corporate income tax bill because all sales to British customers are routed through a Luxembourg affiliate, Amazon EU Sarl, which employs around 500 people. "The British subsidiary, which employed 4,191 people at the end of 2012 and thousands more indirectly via contracting agencies, is deemed, for tax purposes, to be a service provider to the Luxembourg unit," Reuters reported. "It is funded by fees it receives from Amazon EU and since these only just cover operating costs, little is left over for the UK tax authority, Her Majesty's Revenue and Customs (HMRC) to tax."

This gets better. Does this mean that Amazon is instead paying a huge tax bill to Luxembourg? Of course not. "Amazon EU pays little tax in Luxembourg because it pays hundreds of millions of euros each year in fees to a tax exempt affiliate, also registered in Luxembourg," the story said.

John Hemming, a member of Parliament with the Liberal Democrats, the junior party in Britain's governing coalition, said the figures showed the inadequacy of existing rules to tackle the problem of profit shifting by major corporations. "The government clearly needs to do a detailed study on how to handle the tax implications of e-commerce," he said.

But Nick Smith, a member of Parliament with the opposition Labour party, said he wanted the tax authorities to take a close look at Amazon, describing its tax payment as "pathetic." Added Smith: "HMRC should be going through this company's tax arrangements with a fine-tooth comb."

This all should make us feel much better about Amazon preparing to collect billions and pay billions in U.S. state taxes. They do seem to be awfully good at understanding these tax rules.

For more:
- See Reuters story

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