TAX LOOPHOLES

The age of the internet has brought colossal benefits to many large, multinational companies. No more so than for Amazon, a distribution giant. The company has earned very lucrative revenue streams, but has managed to deftly reduce its corporation tax bill through skilful use of tax loopholes. Last year, Amazon paid just £4.2 million in UK corporation tax, despite generating UK sales of £4.3 billion. The firm has been heavily criticised because it has now emerged that it avoided paying billions of pounds in tax last year by funnelling revenue of £11 billion through an overseas company based in Luxembourg. Amazon is also reported to have received a financial inducement and rebate amounting to £4m from the authorities in Luxembourg as part of the controversial arrangements.

This is all the more startling considering Amazon has received more than £10m in financial assistance from the Scottish Government, with the company opening a logistical distribution hub in Dunfermline, alongside its customer call centre in Edinburgh.

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Striking the right balance between competitive rates of Corporation Tax to attract foreign direct investment such as this while ensuring companies pay their rightful share is a difficult and complex area for politicians of all parties. Whilst Amazon’s avoidance causes public anger, governments have to take into account the investment the company has made in a country and the employment which that investment has created. Amazon may well argue that it would not have invested if it had been discouraged from exploiting this position.

A low rate of Corporation Tax which the UK offers in comparison to other countries is generally attractive for foreign firms wishing to make direct investment. But such schemes should also encourage companies like Amazon to pay and reduce the incentive for elaborate avoidance schemes of this sort. The loopholes provide too much of an economic and financial advantage for many large multinational firms. These require to be reined in through tighter political scrutiny and more exacting and better enacting of legislation.