Amazon 'confidential' sales figures outed by U.K. parliament

Confidential Amazon documents revealing sales figures for the U.K. were published online by no less than the parliamentary committee charged with investigating the firm's tax arrangements. 

A fortnight ago, Amazon's director of public policy Andrew Cecil was dubbed "not a serious representative" for Amazon, after coming to give evidence, in the words of U.K. Public Accounts Committee chair Margaret Hodge MP, "with absolutely no information."

The hearing was also attended by representatives from Google U.K. and Starbucks U.K., which have both been accused of avoiding paying the full amount of tax on their sales over the past few years.

After providing little evidence on the retail giant's sales figures -- which would have allowed the Committee to have understood why the firm is paying so little tax, compared to the 24 percent corporation tax these firms should be paying -- the Committee requested additional written evidence to explain Amazon's tax and corporate structure, and how much the firm makes from its U.K. operations. 

Amazon eventually provided the written evidence to the scrutineers. But, despite a "respectful" request to keep the written evidence confidential and out of the public eye, the Committee published it anyway.

The figures

In his letter, Cecil reiterated his evidence that, "[Amazon] have never broken out revenue figures on a country or website basis," he noted that, "we disclose sales, operating expenses, operating income and information for our two business segments, 'North America' and 'International'."

But there's a first time for everything. The firm broke down "International" figures from European countries, except countries from which sales did not exceed $10 million.

(The company noted value-added tax (VAT), which in this case is redundant and not important. Cecil failed to explain the firm's corporation tax arrangement.)

Amazon generated £3.35 billion ($5.37bn) in U.K. sales before tax. The firm turned a profit of £74 million for 2011.

Out of that, £2.91 billion ($4.66bn) -- or 87 percent of the total U.K. sales figure -- was generated through Amazon.co.uk, while the remaining £441 million ($707m) was generated through other Amazon services and subsidiaries, such as LoveFilm, for instance. However, sales of e-books, music and other downloadable media, were sold and therefore taxed through the firm's Luxembourg-based subsidiary, Amazon Media EU Sarl. 

All in all, Amazon's sales increased by 27 percent from 2009 to 2010, and jumped a further 23 percent in 2011 on the previous year to £2.91bn ($4.66bn).

How Amazon works in the EU

The structure of these major multi-national companies is what has the Public Accounts Committee so interested. While some companies use the "Double Irish" arrangement or the "Dutch Sandwich" tax avoidance schemes, Amazon instead uses Luxembourg as its main European base base.

On the other hand: "Customer support services; accountancy, tax, legal, human resources, and localisation services; merchandising and marketing support services; and purchasing services. Amazon.co.uk Ltd is compensated for these services by Amazon EU Sarl; therefore it is not a 'branch' or 'place of business' of Amazon EU Sarl."

Amazon has three major divisions: intellectual property (IP) licensing, digital sales, and its Web sites. 

Here's what it looks like in a nutshell, complete with pretty pictures:

Amazon.com Europe Holding Technologies (based in Luxembourg) holds all the intellectual property to its EU and U.K. Web sites, but is in turn owned by Amazon.com Inc., Amazon International Sales, and Amazon Europe Holdings -- all of which are based out of the U.S.

This allows U.S.-based (headquartered) Amazon's technologies to be licensed appropriately throughout Europe by its subsidiaries. So, licensing fees for that intellectual property are paid to the U.S. head office by European firms -- around £151 million ($242m) for U.K. sales in 2011. 

All EU sales run through Luxembourg-based Amazon EU Sarl (where the tax rate is far lower; around 3 percent VAT compared to the U.K.'s current 20 percent rate), including Amazon.co.uk and other Amazon EU Web sites. 

While we already knew, it's worth noting again that the only U.K. branch of Amazon worldwide is Amazon.co.uk Ltd., which is an order fulfilment company. Sales go through Luxembourg, while the U.K. arm only "provides fulfilment and logistics services," said Cecil. It's worth noting that Amazon employs around 500 staff in Luxembourg, compared to the 15,000 or so employees in the U.K.

"Amazon.co.uk Ltd. earns a margin on its operating costs for providing services performed in the U.K. to group companies, primarily to Amazon EU Sarl."