Should Amazon be made to pay more UK tax?

Yesterday, the Archbishop of Canterbury, Justin Welby, gave a speech at the Trades Union Congress (TUC) conference in Manchester.

In many ways it was a very fine speech. He spoke out for the needs of the poorer members of society with clarity, compassion and awareness of the issues:

We need genuine living wages that enable people to save more than ten pounds a month, if they’re lucky, and put an end to the days when replacing a fridge or a car tyre is a household crisis. 

He was unashamed to be doing so as a leader of a Christian denomination. This is a refreshing change in a day and age when the great social advances in our history are being severed from the Christian faith of those who fought for them. It's good to see the archbishop tie this quest for justice to his Christian faith. Having quoted the Magnificat, he said:

By the way, I’d better warn you there’s quite a bit of God in this. It’s sort of my job. 

He is quite right to see the Bible as speaking directly into how we treat other people, and therefore addressing matters of social reform.

Who God is sets the pattern for who we should be, and what our society should be. That is political, but not party political. The bible is political from one end to the other. But we step into dangerous territory when either left or right claim God as being solely on their side. Jesus was highly political, He told the rich that, they would face woes. He criticised the King of the time as a fox. He spoke harsh words to leaders of the nations when they were uncaring of the needy.

I think his talk could have been improved if he'd defined the term "justice" carefully. He's just resisted the temptation to identify his appeal with that of the political left or the political right. However he doesn't explain how our care for the poor is a matter of justice, rather than (say) compassion or mercy. As soon as you start to articulate how this is about justice, it's probably harder to avoid arguments used by one political party or another.

One detail, however caught my eye.

Amazon's Tax Affairs

He brought up the tax paid by Amazon in the UK.

Not paying taxes speaks of the absence of commitment to our shared humanity, to solidarity and justice. If you earn money from a community, you should pay your share of tax to that community. I was in business, and I know that, within limits, its right and proper for people to arrange their tax affairs, and for companies to do so. But when vast companies like Amazon, and other online traders, the new industries, can get away with paying almost nothing in tax, there is something wrong with the tax system. They don’t pay a real living wage, so the tax payer must support their workers with benefits. And having leached off the tax payer once they don’t pay for our defence, for security, for stability, for justice, for health, for equality, for education. Then they complain of an undertrained work force, from the education they have not paid for, and pay almost nothing for apprenticeships. Those are only a fraction of the costs of aggressive tax management.

It didn't only catch my eye. Today's Daily Mirror ran the headline: "Amazon 'tax leeches' blasted by Archbishop of Canterbury as he slams web giant for not paying fair share". The Times ran an article with the headline: "Tories blast Archbishop of Canterbury for ‘parroting’ Labour view in TUC speech." So it's not only me who noticed. The media noticed. The politicians noticed.

Good. Again, it's refreshing to see our society feel it needs to listen to what church leaders have to say about the issues of the day.

Some of what he says about the low taxes of such corporations is quite right: Underpaid workers need to be supported by other means, and someone has to pay for the infrastructure that produces the work force that a company like Amazon depends on. So it's short-sighted of them.

However I want to look briefly at the basic charge here. To be fair to Welby, he actually says that "there is something wrong with the tax system". He's not necessarily laying the blame at Amazon's door. But he does blame them in part, accusing them of "aggressive tax management" and "leaching off the tax payer". Many others do so with considerably less nuance. Other companies have been accused of the same thing; a while back, it was Vodafone.

Six weeks ago, Amazon's tax affairs for last year were reported in the Media. The BBC reported that Amazon tax bill falls despite profits leap. Apparently their tax bill was down to £4.6m from £7.4m the year before. By deferring some, they in fact paid £1.7m now. Yet their profits were up from £24.3m to £72.3m. Cue lots of cries that "this cannot be right".

If you read that BBC article, you find it's a bit more complicated than that. In part, Amazon is made up of many different companies, and this is only the tax bill for one part of Amazon. They also have been paying some staff partly in shares, and this has (legitimately) reduced their profits and so tax liabilities. It's easy for a non-accountant to identify some figures and make a dramatic headline out of them.

But all the same, there's still a question to answer. So let's look at this: Are Amazon right not to pay more tax than they do? Should they in fact be paying more?

I'm not a professional economist. I'm an amateur having a little paddle here. But still, to stimulate debate, I have two questions:

Does the law require them to pay more?

Amazon has responded to these accusations, saying that:

We pay all taxes required in the UK and every country where we operate. In May 2015, to ensure we had the best business structure to serve our customers going forward, we established a local country branch of Amazon EU Sarl in the UK, with all retail revenues, expenses, profits and taxes due now accounted for in the UK.

We need to distinguish whether Amazon is doing what's required by the law, or is unlawfully avoiding tax.

If they're avoiding tax unlawfully, then HMRC already have the necessary powers to pursue this. The accusations then point in two directions at once: Amazon should pay their dues, and HMRC should be enforcing this.

If, however, they're paying all the tax that the law requires of them, then Amazon are not to blame. The responsibility falls on HM Treasury to adjust UK tax legislation so that a company like Amazon has to pay more in tax. However caution is needed: How to do this is not straight forward. Amazon are a multi-national business. It may be that lower tax rates would result in more tax revenues, as Amazon would then be encouraged to domicile more of their business in the UK.

Amazon would not be guilty of failing to pay the taxes they owe. The most you can accuse them of is failing to make a donation to the exchequer above and beyond their calculated corporation tax. By definition donations are freewill. Amazon may decide that they do wish to make such donations, but that the charity sector is better placed to use their funds than HM Government. Indeed, they may already be donating to UK charities (I haven't checked their accounts to find out). Last November they introduced Amazon Smile that does exactly this, and lets Amazon customers choose the charities to benefit. The amounts thus donated have not been disclosed.

What happens to the tax they don't pay?

The other question to ask is what happens to the tax that Amazon doesn't pay.

That's to say: Imagine (using some figures for the sake of argument) someone thinks Amazon should be paying £100m tax a year, but instead they paid £20m. I've already probed in what sense they "should" do this. But let's now ask what happens to that £80m. If they had paid £100m in tax, that would be an extra £80m into the Treasury. But given they don't pay that, what then happens to the £80m?

It doesn't cease to exist. The £80m doesn't vanish. Instead, one of a number of things could happen with it:

• Amazon uses it to inflate their most highly paid employees' salaries. That is a possibility. It's an unlikely one, as they probably already pay them what they think their services are worth. This would only be likely if senior executives were presently (willingly) taking a much lower salary to help the company stay solvent. This is something that owners of new businesses do all the time, but is hardly the position Amazon is in. It's also hard to prove this is the case, since we don't know what their executives would be paid in the parallel universe we consider. If it were the case, the call needs to shift not to Amazon to donate more money to charity (or to tax), but for their highly paid executive staff to do so in a personal capacity.
• Amazon uses it to discount across their product range. That means ordinary people can shop more cheaply because of the reduced tax bill. If Amazon paid more in tax, the British public would pay more for the goods they buy on Amazon. To the tune of £80m a year.
• Amazon uses it to pay their staff more. The most recent figure I could find was that Amazon employed 24,000 staff in the UK. Divide £80m between them, that's over £3000 each, so I doubt that all the £80m goes on staff salaries. (Remember, the £80m is a fictitious figure for the sake of argument). Amazon have come under some criticism recently for some of their employment conditions, and maybe this is an area where they really need to improve. But if they paid more tax, they'd have less money for wages, so conditions may actually be worse than they are at present.
• Amazon uses it to hire more staff. If they suddenly had to pay £80m extra in tax, that may force them to lay off some of their existing workforce.
• Amazon returns this money to shareholders via a higher dividend than would be the case. Or Amazon's cash balance is higher because they're not paying this higher tax bill, thus inflating their (already high) share price. In that latter case, the money is returned to shareholders when they sell their shares. In either case, the money ends up in the pockets of Amazon's shareholders. Probably, these are some of the wealthiest people in the country. But, once again, the money doesn't simply vanish when it reaches their pockets. That same money gets spent in businesses that employee staff and so on, or saved to be spent at a later date, or even taxed.

There may well be more scenarios. The point is this: In each case, the money they didn't pay in tax did not thereby vanish into thin air. It ends up driving down prices (lowering inflation), raising wages, lowering unemployment, or becoming money that others can use to those same effects.

Like Justin Welby, and like any thinking and caring Christian, I want our society to find ways to end the worst examples of poverty in Britain today. I'd love a world without the need for foodbanks (which is not to devalute foodbanks, themselves an excellent way for churches and other groups to help people in their local community). If Amazon paid more tax, it may help this cause. But equally possibly, by paying less tax, the money they thereby save would be put to other uses that might help this cause even more effectively.

In Summary

I don't know enough to know which is best. I can see that it's far from automatic and obvious that the right solution to tackling poverty in modern Britain is that "Amazon must pay more to HM Government in tax".

First, "must" they?

Second, would doing so be the best use of that money when it comes to tackling the causes of poverty?