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How does Amazon pay so little tax in the UK and can I do something similar to help my business?

tax planning

Laurence Parry, tax partner at Kreston Reeves, answers a reader’s burning questions relating to Amazon’s tax bills.

Q: How does Amazon pay so little tax in the UK? Why did it reduce by 50% last year? Can I do something similar to help my business?

A: Amazon’s tax bill has halved from £15m to £7m even though turnover rose from £946m to £1.46bn. Tax is paid on profits not turnover. The real question is why profits are £24m on c£1.5bn of turnover?

There are a number of reasons for this. A big warehouse in any country doesn’t automatically mean that you are taxable there. To encourage overseas trade most double tax agreements say that warehouses do not constitute a taxable presence. So what it is about Amazon that creates its profits? Amazon doesn’t sell many of its own goods – where it does (eg Kindles) these are manufactured abroad. It sells electronically supplied services (eg Amazon Prime) but these are delivered from a server which could be anywhere....