Save John Lewis by taxing Amazon!

This is nonsense on just so many levels:

John Lewis says that it could be put out of business if foreign multinationals such as Amazon are allowed to continue paying tiny amounts of tax in Britain.

But how? We keep being told that taxes are not an imposition on a company, they\’re just the righteous amounts they pay to support the society around them. How could that possibly lead to one of them going out of business?

Speaking on Jeff Randall Live on Sky News, Mr Street said that the difference between the taxes paid by his company and Amazon could have severe consequences.

“If you actually improve your business by investing, what that means is you have got less money to invest if you’re giving 27 per cent of your profits to the Exchequer, than … if you’re domiciled in a tax haven and you’ve got much more,” he added.

“So they will out-invest and ultimately out-trade us and that means there will not be the tax base in the UK. So I do think it’s an issue that needs to be examined.”

Err, if you reinvest retained profits then you get capital allowances and the like. So you pretty much end up not paying tax on that portion of profits which you do reinvest.

Or perhaps this isn\’t true? Maybe corporate taxation does indeed take a great gouge out of the amount that a company can reinvest, employing more people, expanding the business and the economy? In which case, why are we taxing them in the first place? Are we deliberately trying to reduce investment and employment?

Mr Street said he felt that John Lewis’s customers would also expect “a fair and level playing field” in which both companies were treated in the same way.

But here\’s the real killer. Amazon generally doesn\’t make much profit anyway. Indeed, it\’s their basic business philosophy not to. They generate cash flow, for sure. But they then immediately spend it on expansion of the business: by investing in it.

This not making a profit isn\’t all about tax either. We\’re not talking about billions piling up in tax havens while reported profits in tax jurisdictions are zilch. The company at group level seemingly deliberately doesn\’t make much profit. They just spend everything coming in on expanding the business. There just aren\’t profits of any size to tax.

Looking at the 10-K filing in the past 5 years Amazon has made (roughly) half a billion total profits in each year except for year before last when it was a billion. On revenues that are now racing through $45 billion. Globally they make 1%: there just ain\’t much profit there to tax, is there?

Because they\’re reinvesting it all.

And if they\’re just not making much money then the tax they\’re paying or not paying on not much money doesn\’t amount to a hill of beans, does it?

27 thoughts on “Save John Lewis by taxing Amazon!”

  1. There are chunky tax deductions, essentially, for certain reinvestments, but HMRC still think your taxable profits are a lot higher than a good accountant would.

  2. Amazon and John Lewis aren’t directly comparable: one is a fast-growing online media empire which happens to sell TVs, the other is a steady high street retailer. Let’s look at Starbucks and Costa Coffee instead, circa ten years ago.
    As an investor, I could choose to buy new shares in either Starbucks or Costa. Let’s assume that both had similar yield. In order to diversify my portfolio I buy fifty shares in each.
    Now at some point in those last ten years, Starbucks decides to start using tax dodges. Post-tax profit rises. As a shareholder I win through higher dividends and higher share prices. The board members cash in their share options. There is no need to pay ordinary employees any more though, so they certainly haven’t gained.

    Therefore incidence of changes in corporation tax falls on shareholders (and management), since they are the ones who receive the profit. Not reinvestment or R&D (as you pointed out yourself), and certainly not employees.

  3. John Lewis is actually a partnership – so you would expect its corporation tax bill to be £zero. Margins are probably small on the sorts of retail business it (and Amazon) operates, but I think you are confusing cash with profit. I don’t get what investment Amazon is now making? Its processes are mature, and its brand is strong. It should now be a cash cow. Of course, Amazon’s business model has an inbuilt advantage over John Lewis – it does not have to stock large stores – perhaps that is the ‘investment’ you are referring to?

  4. Amazon in Europe is in a growth phase. Turnover 40% up last year, rolling out their services over Europe. They are primarily a logistics company.

    JL is an established, stable-low-growth company primarily a retailer with an online component.

    The situation and according corporate strategies of these two companies are fundamentally different. The only thing the two companies have in common is that they “sell stuff”.

    It’s not like British businesses are not pulling the same tricks anyway. Remember those warehouses in the VAT-free Channel Islands until recently?

    Besides, John Lewis could set up a licencing/service company overseas for the online part of their business just like Amazon if it made sense for them.

  5. Amazon keep opening ‘fulfilment centres’. Big places for other companies to store stock utilising amazon websites. Think Dumfermline, Rugeley and Hemel hempstead opened in the past couple of years.
    Presumably lots of staff, equipment etc. And of course besides operating a service for companies they add to their range of stock – with sales figures on the amazon site provided by the sales of other companies!

  6. Could someone clear up something for me? This ‘capital allowances’ thing. As far as I understand it, this does not allow you to declare (say) £500m in profit in one year, and then say to the taxman ‘We invested £400m in a new factory/plant this year’ and thus reduce your taxable profit to £100m. You get write offs of a certain % of the investment in every year going forward, not all of it in the first year. Is my understanding correct?

    I know for my business (farming) that if I purchase a machine for more than £25K in any year I don’t get 100% write off in the first year (under £25K is 100% write off), and if I build new barn I don’t get any write off at all. I have to initially pay for the investment out of taxed income, and then get it back over the coming years via a reduction in my tax bill from future capital allowances. Is it somehow different for corporations?

  7. @ Sam

    “But no one will ever have their wedding list at Amazon”

    People already do. And there will be more of that, as Amazon continue to move from only selling their own stuff to getting involved with sales of anything from any website.

    They now, for instance, offer the ability to add things from any website to your Amazon wishlist. I’ve not tried it, so I don’t know how it all works and whether, at the moment, Amazon are grabbing a cut on any sales therefrom.. but that will come.

    So.. if the happy couple wants some towels from John Lewis on the list, then they can stick them on the Amazon list.. along with mugs from Habitat, the bedding from Ikea, the lamp from and, maybe, a DVD or three from Amazon itself.

  8. Presumably lots of staff, equipment etc.

    Indeed. Stuff you can drop on your foot, forklifts, men in hard hats and overalls. You’d have thought the lefties would have loved it, over and above John Lewis which is basically Tesco with a different ownership model.

  9. But no one will ever have their wedding list at Amazon

    What The Thought Gang said. Last wedding I attended (couple based in Canada) had gifts uploaded on and I bought them a camera lens in two clicks of the mouse.

  10. You rarely hear a leftie saying that the taxation of international companies and British ones should be harmonised by *reducing* the tax rates on the British ones. I wonder why that is?

  11. A query: my understanding is that CGT does not raise much tax, the real point being to prevent people turning taxable income into capital gain. So CGT (if that’s right) is more of an indirect anti avoidance measure than a serious means to raise revenue.

    Does the same really apply to corporation tax – a means to prevent other fiddles?

    (Before anyone asks, I haven’t thought much about what fiddles might be done. In 30 secs, I came up with the following: I could set up a company, pay myself very little out of the profits for a couple of years, then go to Belgium for a year and pay myself a massive tax free dividend. Then repeat. )

  12. @alastair harris:
    “Of course, Amazon’s business model has an inbuilt advantage over John Lewis – it does not have to stock large stores – perhaps that is the ‘investment’ you are referring to?”

    One could alternatively view that as an advantage for JL; they have stores to view and handle products, and stock available immediately. I like both Amazon and JL, but I’m not sure there’s much overlap in what I’d buy from each.

    If JL are threatened, it’s by people who (unethically, IMHO) treat JL et al as a showroom for Amazon et al. I take the moral position that if I’ve made use of a bricks-and-mortar-shop’s expertise, showroom etc. then they deserve to get the sale (though I will try to haggle if the ticket prices are more than a little higher!). I don’t think that’s something one can regulate or (heaven forfend!) legislate for, though.

  13. my understanding is that CGT does not raise much tax

    True, relatively

    the real point being to prevent people turning taxable income into capital gain.

    I’m not sure that follows. If that was the real intent, the rates would be closer and there would be fewer exemptions for CGT. Assuming competence in government, of course.

    The thing is that, main dwelling aside (and that’s CGT exempt – I’m sure the LVTers will be along shortly to holler about that being an evil market distortion), CGT simply isn’t that much of a deal for most people. I’m not aware of anything that I (or a close relative) have bought that has been later sold for CGT-incurring amounts.

    We tend to buy stuff, use it and if not throw it away, sell it for less than we paid for it. Shares etc, for most people (appreciating that the audience here may not be reflective of wider society), handled by pension funds (or in the small (per-capita) amounts dribbled out by various privatisations or de-mutualisations.

  14. @ TTG, Tim N

    People already do &c

    fair enough, I stand corrected. In which case JL probably are fucked, since as far as I can see that’s currently one of their major sources of income…

    I love amazon. Cheap, sells things I want, efficient &c. Usually do all my christmas shopping there. I also have a prodigious and acquisitive second-hand-book habit, so one of my main entertainment expenses is postage (as there are lots and lots of books on there for £0.01, rising to £2.81 with P&P – which is about what you’d pay in a second-hand bookshop. I still patronise the latter – it’s practically an addiction – but not as much as I used to).

  15. Just to clear up one point: if John Lewis decides to invest in new store, only a part of their expenditure on fitting it out will qualify for capital allowances (depends what qualifies as “plant and machinery” or “integral features” – don’t ask). They will get a tax deduction for 18% or 8% of the qualifying expenditure each year on a reducing balance basis – i.e. the tax relief is (sort of) matched to the useful lifetime of the asset. The non-qualifying expenditure is effectively paid for out of taxed profits. I’m assuming JLP wouldn’t own the actual bricks and mortar – they certainly won’t get any tax relief for them.

  16. @Luke

    you would have to do a little more than go to Belgium for a year as you would be caught by the UK residence rules. You need to be out of the UK for 3 years to avoid UK income tax altogether.

  17. @jumbo o’reilly: then TW is wrong when he states in the post above:”If you reinvest retained profits then you get capital allowances and the like. So you pretty much end up not paying tax on that portion of profits which you do reinvest.”?

    Or rather he’s right, in that you do get the money back over the following years, in the form of lower tax bills, but you still have to pay the tax up front, so the amount of corporation tax does not fall at the time of the investment?

    And if JL chose to build their own store (rather than lease one) they would get no allowance against CT at all?

  18. You need to be out of the UK for 3 years to avoid UK income tax altogether.

    Are you sure? It used to be immediate, but you had to remain out until the end of the *next* complete tax year. If you returned before then, you need to pay all your taxes back. Certainly when I left, I became tax-free immediately.

    Once you’ve been out, you can return for a maximum of 90 days per year averaged over the past 5 years (or maybe 3 years).

  19. “We keep being told that taxes are not an imposition on a company”

    hahah At least in Portugal they don’t beat about the bush

    The Portuguese word for taxes is “Impostos”!!!

  20. Tim’s right (except that it is averaged over ‘up to four’ years.)

    The out for 3 years is the “indefinite absence” rule for tax domicile, as opposed to being “not ordinarily resident” which is as per Tim @ #21.

  21. I stopped doing this sort of thing in the UK in 2010. Wow. Fucking hell, they haven’t seriously abolished depreciation allowances on buildings? That’s insane.

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