Amazon is being investigated by UK tax authorities, according to the The Guardian, after filings with the U.S. Securities and Exchange Commission (SEC) reveal it paid no corporation tax on profits made in the UK.
The global retail giant, which sells one in every four books in the UK, generated £7.6 billion ($12bn) in sales in the past three years, but is thought to have avoided paying tax on its profits after Amazon transferred its UK business to a Switzerland-based entity back in 2006 where the tax rate is lower.
Amazon allegedly managed the trick by operating in the UK as a "order fulfilment" and delivery service, while sales transactions were made directly between UK customers and Amazon EU Sàrl, based in Luxembourg.
Amazon employs 2,265 people in the UK with a turnover of £147 million ($232m). Amazon's Luxembourg home employs only 134 people yet reports a turnover of €7.5 billion ($10.2bn) --- and that's just for 2010.
The tax headache may not be over for a while, as Amazon is being investigated also in the U.S., China, France, Germany, and Japan, along with its home base of Luxembourg, according to an SEC filing.
But as one financial expert put it: "All this is legal until the UK tax authorities deems otherwise." Thanks for that, Gordon.
In the U.S., Amazon doesn't pay tax in any state it doesn't have an office, a warehouse, or a physical presence, leading it to pay taxes in what is understood to be only five states. In California, the company was given a one-year relief on collecting sales tax on purchases made in the state.
HM Revenue & Customs (HMRC) declined to comment to ZDNet. The Guardian had no luck either.
That said, it could be a routine audit and HMRC finds that nothing is wrong, and that the UK's taxation system is completely bust, as one financial analyst puts it:
"We need radical corporation tax reform in the UK and worldwide. Unitary apportionment formula taxation stops tax haven abuse of countries like the UK. It’s glaringly obviously fair and the data to do it could be available if we had country-by-country reporting accounts."
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