They\’re still not getting it on corporate tax, are they?

Seriously, do we have to be ruled by ignorant buffoons?

The committee said it was \”not clear\” whether the OECD reforms unveiled this month ahead of a G20 summit go far enough to stop big companies, such as Amazon, shuffling sales income from British customers to low-tax countries.

\”It is not yet clear how effective the proposed solutions will be or whether they can be achieved within the [two-year] timescale,\” the committee\’s report, published on Wednesday, said. \”In the meantime, the UK faces the prospect of losing much-needed revenue.\”

Amazon doesn\’t make profits, remember? A loss last year globally, a loss last quarter globally. There just aren\’t any profits to rightfully tax.

George Osborne had hailed the OECD tax reforms – potentially the most ambitious internationally-agreed tax changes since the 1920s – as an \”important step towards a global tax system that is fair and fit for purpose for the modern economy\”.

The OECD reforms promise to put a stop to Amazon routing its £4.2bn annual UK sales through Luxembourg, paying negligible UK tax along the way.

Companies are not taxed on turnover or economic activity. They are taed upon profits: and if you don\’t make any then you don\’t pay tax.

For goodness sake, if we had the Murphmeister\’s unitary taxation we\’d being issuing Amazon with sodding tax credits.

Lord MacGregor , chairman of the committee, said: \”There is a sense that corporation tax is voluntary for some multinationals… while small UK-based businesses go by the book and have to pay.\”

He said the government should consider introducing a destination-based cashflow tax, under which companies would be taxed on profits generated in the countries where their customers live.

But Amazon doesn\’t make any profits!

The committee also raised serious concern that HMRC, the only public body able to see corporate tax returns, has not publicly commented on these cases or the controversial tax deals it reached with Goldman Sachs and Vodafone.

Good grief. The GS case was whether GS should have paid interest on the tax owed or not. No one else in hte case had paid interest on the tax paid: so it\’s entirely arguable whether GS should have done or not. But that is what it was all about. And for £20 million or so. An amount that could indeed get swallowed in legal bills if GS had decided to fight it out.

Vodafone is even more silly as we know very well what the \”deal\” was. V simply didn\’t owe any tax, the £6 billion bill never existed. And V won on EU law as well. The settlement was that V brought some of those offshore profits into the UK in order to pay the dividend. An action which all agree makes those profits liable to UK corporate taxation. That\’s it. There simply isn\’t any controversy here. Well, except that manufactured by a few lying scum that is.

It\’s simply so annoying to find that those who rule the country just don\’t know the basics of what is available on numerous blogs for free.

43 thoughts on “They\’re still not getting it on corporate tax, are they?”

  1. Probably – since their emotive case appears to be “wicked global BigCo is crushing our artisans with its clever accounting” – worth reminding them periodically that turnover taxes favour the biggest most vertically-integrated companies and penalise little, local ones.

  2. £6m….£4.2bn….£6bn….

    …keep repeating large sums and conflating profit, turnover, costs,…..

    “EEEVILL KAPTIALISTZ”

    Rinse and repeat.

    Can I get a job at Graun or on the finance committee please?

  3. MPs want a larger salary! Clearly these stupid MPs don’t actually earn the salary they currently receive. Now write out 100 times boys and girls “Tax is paid on profits NOT on turnover”

  4. @ Arthur Dent

    Yes it is, but if tax is avoided via profit shifting then the profit is, by definition, not there to tax. So.. if one is of the view that profits that should have been taxed have been shifted then it makes some sense to talk about the turnover. It is not that Amazon should be taxed on £4.2b of sales, it is that there were £4.2b of sales and that a company which makes £4.2b of sales in a country should probably pay some tax there.

    I’m not defending the ‘campaigns’ as such, nor those who throw numbers around without understanding what they mean.. and I recognize that, in the case of Amazon, it’s possibly moot because there are no global profits anyway (which isn’t to say there are no profits from UK operations).. but I do find it a little disingenuous when turnover figures are shouted down on the grounds that we tax profits, when the complaint is that the profits are not there because they’ve been inappropriately shifted.

  5. A company that has been big for about ten years and turns over billions a year and is still not making a profit must be in seriously deep financial shit, no?

    How do all these megacos that never make any profits survive? Don’t the creditors occasionally call in the debts?

    Or is there no profit because the owners lend vast sums of money to their own business and the profits actually get paid out as interest on the “loans”?

  6. JamesV:

    Debt can typically be refinanced. Ergo you don’t always need profits today in order to service debt. You do need profits sooner or later though to be able to give a ROI to your shareholders (as an aggregate) but the very business model of Amazon is that those profits should come further down the line.

  7. Offshore Observer

    JamesV, I have a theory about Amazon. Essentially Jeff Bezos doesn’t give a shit about quarterly profits or reports, or indeed the daily machinations of the stock market. He is doing what we all want great CEOs to do and look to the long term. That long term is to make Amazon the best on-line retailer in the world by providing good customer service and reasonable prices. Profits are secondary at the moment as he is focussed on growth and expansion.

    Over time Amazon will make profits but it is going to be high volume low margin business like most bricks and mortar retailers. So his first goal is to drive revenue, when he has market dominance you will start to see profits.

    The share market doesn’t seem to care as over time the value of the shares has continued to grow.

    Overall Amazon is potentially a good long term bet, but you are right at some point they are going to have to make a profit or they will fail

  8. JamesV, amazon do usually make a profit. Some years they won’t, pretty much like most companies. The profit they have made in recent years has been around 1% of turnover. Doesn’t need to be in serious deep financial do-da, so long as has cash to pay its creditors. Which it will do.
    There’s a way of paying creditors used by a lot of companies, its called cash flow. You pay xxx on the 6th of the month, pay yyy on the 20th of the month and zzz on the 28th of the month, using cash coming into the company. You don’t wait until the end of the year.
    In the case of amazon I do hear about 90 day credit accounts – they will buy goods and pay for it 90 days later, having hopefully sold some of the stuff purchased. Not uncommon in business though for small companies 30 days is more common.

    In the case of amazon there will be a fair bit of investment into expansion. Doubling in size when you are a large company takes some doing, Governments for whatever reason like companies to expand!

  9. The interesting thing to me about this profits thigng goes back to Ricardo and his falling rate of profit. The point of that being that in a free market, we should expect businesses not to make much profit, and indeed expect that those who do make vast profits are up to something funny and not very free market *cough* Goldman Sachs *cough*.

    Point being that the rightful relentless selfishness of cornsumers in a free market should always pare profits down to the bone.

    I think part of the problem the left have is this Marxist-style perception that all the money is going to the capitalists and there really isn’t much understanding that in a free market, a profit is more of a bonus than a feature.

  10. If you define profit as return on investment the you can accademically consider ineterest payments as a type of profit.
    It would be vauble to know the amount of money amazon raised from shares and how much loans.

  11. We should indeed expect profits to be small compared to turnover in a free market. After all, that margin is, in a truly free and perfectly economically rational world, merely the extent to which you are more efficient than your competitor.

    Cash flow and poor payment terms for your suppliers however does not explain to me the extent to which these companies appear to be able to defy financial gravity for so long. Indeed if you rely on revenue on stuff you’re selling before you have to pay for it yourself, that will come to a grinding halt once your spectacular growth phase is finished. Which means Amazon might well start living in interesting times, roundabout now.

  12. What about the buisiness ethics of Amazon putting profit making bookshops out of buisines while not being a proper profit making buisiness themselves. On the other hand the CEO is making money,the employees are making money and the banks are making money. There is also VAT is there not.

  13. A company and its share price could in principle continue growing indefinately – by reinvesting the proceeds that would otherwise be profit and never pay corporation tax.

  14. – Rob
    Good point – to be precise they don’t make a profit after Amazon take away their buisiness, by vitue of unercutting them by using their unconventional buisiness model

  15. Dinero,

    What about the buisiness ethics of Amazon putting profit making bookshops out of buisines while not being a proper profit making buisiness themselves. On the other hand the CEO is making money,the employees are making money and the banks are making money. There is also VAT is there not.

    Yeah, providing the public with cheap goods, while taking no profits for themselves and as a bonus, having well-rewarded staff. What a bunch of evil fuckers.

  16. Dinero: what about having a look at the Amazon investor relations or at any financial site such as Yahoo finance?

    Market cap = equity according to yahoo finance: USD138 bn
    Long term debt according to Q2 Amazon financials: USD3bn + 2.3bn of other long term liabilities. Short term debt is made up of accounts payable (so the 90 day payments terms) and accrued expenses (accruing interests and other accruing periodic expenses).

    Ergo not much reliance on debt and not much shifting of profits through interest payments.

    From the accounts you will also see that Amazon is generating decent operating cash flows (albeit with some variance depending on the time horizon which seems to come from seasonalities presumably to do with Christmas sales) but that it typically reinvests a lot of this in property & equipment and acquisitions.

    That took all of 5 minutes. Wonderful what transparency the capital stock markets bring isn’t it

  17. Many bookshops sell on amazon or one of its companies. Still possible to make a profit, cannot offhand think of any bookseller I have come across (and that includes on amazon’s forums) who sells for a lower price than they want to set. Amazon is far more than a bookshop now too, we sell there and we do gifts & craft supplies! A local garden centre near me sells on amazon too.
    Ignoring one particular company selling on the internet because it affects bookshops rather misses the point of ecommerce trading.

  18. Tim Arnold

    Making a profit is important to the pinciple of buisiness. It show the activity in question has utility ie, is usefull

    Quote Thomas A .Edison

    “Anything that won’t sell, I don’t want to invent. Its sale is proof of utility, and utility is success.”

  19. Dinero, selling and making a profit are two entirely different activities.
    Some companies can go years without making a profit, yet manage to sell. One company is Fortnum & Mason, another is British Airways. Useful?

  20. > Martin – True , True

    >Emil seriously did amazon raise and spend 138Bn . How long would it take to return an equal sum of money to share holders in dividends

  21. @ JamesV

    Others have covered it but I’ll add this.

    Revenue = 100, net profit “from that revenue” = 5 (making numbers up), and during the year you employ new staff / offices etc. New staff etc cost 4 or 5, and hence no profit. ie profit “from existing activity” is continually reinvested in growth by employing people, advertising, etc.

    Obviously no problem paying creditors, staff, etc..

    Similarly, taking a simplistic view, if you invest in a company, some companies are good for capital gains (future sale of the shares after lots of growth, no dividends during that time), some are good for regular dividends (ie from steady taxable profits not reinvested to the same degree).

  22. Market cap is not amount raised by the company. it is the number of shares times the current share price. On the books of Amazon the total stockholders equity is $8.7 bn. The amount of money they have raised from shareholders seems to be somewhat below this when taking into account retained earnings and losses.

    Total assets / liabilities is $29.6bn

    It’s all in the accounts on the IR site.

  23. Martin Davies,

    They’re also big in the hosting/computer services business now, because they have so much experience with massively scaled server operations.

    I know someone who is using their transcoding and streaming for video. You pay per video, but if you’re only doing a fairly small amount, it’s much cheaper than setting up your own server and software.

  24. > Emil

    so in fact the money invested by the banks is comparable to the money invested by the shareholders. So the profit is going to the banks.

  25. What was that thing about Amazon really being a charity run by the investment community on behalf of consumers?

    I don’t want to traipse around a hundred fucking high street shops to get a basket of goods that I could get in five minutes and for a third of the price on Amazon, wso don’t fuck with their business.

  26. Dot com companies reward investors through share price growth not dividends. Most investors in these growing companies aren’t there for dividends they want growth.

    I wouldn’t be surprised if Amazon has some sort of deal with the banks and major shareholders that means they have to grow the share price or pay out.

    As someone pointed out above they have moved in to cloud computing and building this data centres is effing expensive.

  27. Dinero: in terms of liabilities and equity they have:

    – $14.7 bn from suppliers and other accrued (current) expenses
    – $3bn long-term debt
    – $3bn other long-term liabilities
    – $8.7bn shareholder equity

    Anyway you look at it that does not translate into the money invested by the banks being comparable to the money invested by the shareholders. 3bn out of 11.7 bn (3+8.7) = 25% -> 3x more has been invested by the shareholders. This is very much in the low end of leverage in my experience. PEs were going in with 90% leverage in the good old times and that was 90% debt out of the enterprise value (which would be calculated with 138bn equity and not of the balance sheet value) and >50% leverage is not uncommon at all to see.

    If anything it is clear that Amazon is (as any large scale retailer) financed to a large extent by its suppliers.

    I guess you want to entirely get rid of interest payments and debt financing?

  28. They get a fair bit (40% at one time may be different now) of their money from services rather than goods. That includes providing the platform and even storage/distribution of goods for others to sell. Many profitable businesses use third party sites, including amazon though one of the pricier ones.

  29. Azanom PLC says Azanom PLC makes a loss. Has done every year since forever. Is still with us despite this.

    Being a non-accountant, and growing bored of arguments along the lines of opening another office counts as “reinvesting of gross profits” rather than “that’s the cost of doing business so shouldn’t turn up in any profit calculation to start with”, I like a lot of other equally ignorant non-accountants, stop believing what Azanom PLC says about its own finances and start to call huge steaming piles of bullshit. Because no one, not even the government, can run a deficit forever.

    And if the entire (lack of) tax on globally-mobile capital thing is enough to make red-in-tooth-and-claw global liberal free-market apologists like myself, for heaven’s sake the G-fucking-20 sit up and take notice that global capital seems to be given a free rein to not contribute while labour has to make up the shortfall, there is something seriously fucking wrong.

  30. @ JamesV

    “…and growing bored of arguments along the lines of opening another office counts as “reinvesting of gross profits”…”

    Apologies James, there was no intent to bore you, it was simply a fact. If you employ more people, it is a cost (and that will reduce both profit and corporation tax). Amazon have clearly been growing.

    You say “never made a proft”? However, they do have positive P&L reserves, hence clearly have made profits (of some amount) since they’ve started.

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTc5ODc3fENoaWxkSUQ9LTF8VHlwZT0z&t=1

    Taken from here:

    http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsannual

    The consolidated balance sheet (page 40) has retained reserves (earnings) of $1.9 billion at December 2012, and shows that the group made profits (page 41 for ease) in both 2010 and 2011.

    Not sure if that helps? The balance sheet (page 40) is quite clear, it has quite a bit of spare cash, circa $11.4 billion at December 2012, so quite a healthy cash position (deferring payments to creditors etc).

    These overall consolidated accounts are audited (Ernst & Young) and filed with the SEC. I haven’t looked at the detail here but I would hesitate before calling BS? I haven’t looked at any UK only accounts?

  31. This is the problem – Joe Public are not accountants but they do understand the law of gravity. Ergo Amazon should have died if it is not making profits (and paying taxes on them).

    Hence the suspicion – even if incompletely justified and poorly understood – that those profits are being hidden or turned into not-profits by oh-so clever accountants.

    Of course opening a new office is investment but why do you work out revenue minus costs of “exisiting activities” = profit; minus cost of new office makes no profit? If you need an office in Bamako you need an office in Bamako so open it and start paying for it. Don’t make it look like it is being double counted.

    Oh, and not paying suppliers for months on end just adds to the dreadful PR.

  32. “This is the problem – Joe Public are not accountants but they do understand the law of gravity. Ergo Amazon should have died if it is not making profits (and paying taxes on them).”

    Joe Public doesn’t understand the law of gravity. Physicists do, and they’ve told Joe Public how it works and he’s decided to go with their explanation because they’ve done their research.

    You’ve got people here who are patiently trying to explain things.. and those people do know how things work because they’ve done their research.. but because you don’t understand it you want to assume it’s all a bit dodgy. As an accountant, who’s done the years of training and passed the exams and wotnot, I’m a bit offended that you reckon any old layman should be able to understand what I do.. and that, if not, they get to assume that I’m a crook.

  33. JamesV

    “Of course opening a new office is investment but why do you work out revenue minus costs of “exisiting activities” = profit; minus cost of new office makes no profit? If you need an office in Bamako you need an office in Bamako so open it and start paying for it. Don’t make it look like it is being double counted.”

    I’m not sure I understand what this means but I think it is important to understand that
    1) profits and cash flows are two very different things and the impact of investments on one and the other are very different
    2) profits declared to shareholders can be different to profits accepted by the tax authorities for a number of reasons (they may not accept the same write-offs and lifetimes that your owners will want to use and then there is also the problem of inconsistency between authorities in different countries).

    “Oh, and not paying suppliers for months on end just adds to the dreadful PR.”

    This is just standard practice in retail. It’s the same way Tesco or any other large (and many small) retailer works.

  34. Amazon coud turn into a profit making company today if it paid of its debts by selling shares and turning the debt service into dividends, Bingo profit!

  35. Dinero,

    So what?

    The thing that gets me about these discussions is that the same people tend to complain both that
    – there is not enough debt financing of businesses
    – companies using debt financing at a lever far below average (and are at the same time hiring 1000s of staff) have too much debt and are therefore not paying enough taxes.

    Make up your mind please, shall we have debt financing or not?

  36. >Emil

    I don’t have a view on debt financing. I was engaging in the discussion be had on this blog comments as to what is the nature of a company with a turnover of billions of pounds that does not make a profit.

  37. @ JamesV,

    Of course opening a new office is investment but why do you work out revenue minus costs of “exisiting activities” = profit; minus cost of new office makes no profit? If you need an office in Bamako you need an office in Bamako so open it and start paying for it. Don’t make it look like it is being double counted.

    Apologies, I thought I was being straightforward. Let me add some detail (making numbers up again).

    Imagine three employees, they sell goods of 100, cost of those goods is 80, their employment cost is 15 (5 each), hence profit is 5. Good business, nice and simple. Just keep doing that and make a profit of 5 each year and pay tax of 1 (at say 20%).

    Instead, because it’s a nice business, we decide to hire another employee. Cost is 5 per annum. The problem is (and I am being very simplistic here), it takes an employee time to get up to speed. So for a time, he is not selling. Hence, total profit is reduced. Nothing complicated about that at all.

    When the new employee starts selling and making a profit, hell, why not take on another one, and another.

    In fact, whilst we are making any profits at all (as long as we have cash, which we do thanks to our good cashflow agreements with our suppliers) why not just keep reinvesting in new employees, marketing, other growth costs etc, and just simply grow the business?

    At the point we stop growing the business, of course then the existing activities at that point will be bringing in lots of profit and cash.

    No idea if that helps with the basic concept, ie reinvesting for growth versus more static?

    There is another issue here, quite separately, and I accept that this is simply “an opinion”:

    Part of the problem with all of this reporting (and mis-reporting) is that people have political agendas.

    If, in pursuit of those agendas, they can wind people up, and especially lay people and others if it’s a complex subject, then that’s a nice easy way to mobilise support towards an agenda, even if sometimes those “foot soldiers” don’t always (mostly) recognise they are simply being used. That’s certainly seems to be the case at the moment with a lot of this tax avoidance stuff.

  38. @ JamesV

    This is the problem – Joe Public are not accountants but they do understand the law of gravity. Ergo Amazon should have died if it is not making profits (and paying taxes on them).

    I explained above (and gave you the links), they did in fact make profits in both 2010 and 2011 – cumulatively to date, they have $1.9 billion of retained profits; hence, not really sure if I understand you clearly on this one?

  39. James V, pretty much every retailer will have access to credit accounts with suppliers. I have a small business doing ecommerce – can order some goods at 1am this morning, get them delivered next Monday to process here and pay the supplier for them on 30th September. Thats how that supplier works, and allows me (and other retailers they supply) a chance to sell the goods before having to pay for them.
    Another supplier we have a 30 day account with, 30 days after goods sent they become payable. While some other of our suppliers we choose not to have a credit account with at all – businesses can get into trouble if too many bills come due at once!
    Cashflow enables growth, corporation tax will eventually be payable at some future year though at the moment it is not. Took our first employee on last summer which increased costs, so impacted profits.

    Have a go at a company for doing something it should not be doing. Please don’t have a go at them for operating as a company.

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