50% drop in Amazon UK tax bill

For the last year Amazon has increased its turnover 54% but the amount of UK corporation tax it paid has dropped 50%. How did it happen? While everybody is wondering, the answer seems to be pretty obvious.

Taxes are not paid on turnover but on profit. Amazon made a lower profit, that’s why it paid lower taxes. Compared to the last year’s 48 million pounds in profit, this year’s 24 million seems like a serious drop. But this year’s tax Amazon paid were only 7 million pounds, while last year it paid 15.

The question is why the profits were lower. The way the company pays its employees might be part of the answer.

Amazon UK Services run the countries, where the deliveries are processed, packed and posted to UK customers. 16 000 of the total 24 000 that Amazon has in UK, work at Amazon UK Services. The employees are shareholders and each one of them gets at least 1000 pounds worth of shares per year, which can be cashed after 1 to 3 years. Meanwhile the price of Amazon shares could get higher and the shares of the employees could worth more. Over the past years the Amazon’s share price has gone up and almost doubled recently. So, staff compensation, which is an expense, goes up too. Expenses could be deducted from revenue and when the profits are lower, the taxes on the profits are lower too. The extra income for the staff is unlikely to be taxed.

According to the HMRC rules an employee could receive 3 600 pounds worth of tax free shares per year. The awards are usually lower than this. So the employees win through the tax-free windfall and Amazon also wins not paying cash. The only loser seems to be HMRC.

It is all under the requirements of the UK tax law. The weird fact is that the more valuable Amazon becomes, the less tax it pays.

The tax affairs of the technology giants such as Apple, Amazon and Google have drawn attention recently. It is obviously a challenge to adopt an obsolete tax code to work with giant multinational companies. Anyway, the practice of giving the employee shares is widespread and completely legal.

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