Tax concerns smother Amazon's festive joy
In results that will inflame the debate over its tax contributions around the world.
In just 13 weeks, Amazon's savings, which are held in cash and investments, have ballooned to between $7-billion and $9-billion, from $5.2-billion in September, say analysts. The group's performance helped to topple a number of its United Kingdom high-street competitors, with the camera shop Jessops and music store HMV going into administration earlier this month.
The UK generates an estimated 10% of Amazon's revenues, pushing the proportion of the cash pile collected in the British Isles to an estimated $900-million.
The retailer is under fire for paying low levels of corporation tax in the UK and other markets.
Politicians across Europe are casting about for ways to restore public finances, and the sums are eye-catching.
The issue will be in the forefront this week, when Parliament's influential public accounts committee resumes its inquiry into tax avoidance by taking evidence on January 31 from the four largest accounting firms. In the sights of many MPs are the major United States companies that use a complex web of offshore havens to minimise their tax payments. Filings by Apple have revealed it is putting $1-billion a week beyond the reach of the UK and US tax authorities. The iPhone maker amassed $11-billion in offshore havens in the last three months of 2012 and has shielded $94-billion from tax authorities around the world.
Wall Street is forecasting that Amazon enjoyed larger than ever revenues of $22-billion for the December quarter. The retailer continued to win market share from high-street retailers over the festive season, according to RJ Hottovy, an analyst at the US broker Morningstar who puts Amazon's reserves at between $7-billion and $8-billion.
"Governments are looking to corporations more and more and re-evaluating what the appropriate tax balance should be," said Hottovy. "It's a very real risk for the company, but Amazon, given they have low costs and a sizeable cash position, will be well protected."
The broker Sanford C Bernstein forecast $8.5-billion in December, but says the total may have altered because the company has increased its debt. Debt payments can be offset against profits to minimise tax bills. Recent acquisitions may also have eaten into cash.
Morgan Stanley calculates $9-billion in savings – $6.8-billion in cash and the balance in short-term investments such as shares, government debt and corporate bonds.
At the last count, more than $3-billion was held in foreign currencies, including euros, sterling, Japanese yen and Chinese yuan.
In three years from 2009 to 2011, Amazon earned more than £7-billion in the UK but paid just £2.3-million in corporation tax, despite employing 15 000 people in the country, thanks to a scheme that drives sales through a European head office in Luxembourg.
Its most recent published earnings are for 2011, when the UK generated £3.35-billion in sales, around a tenth of its $48-billion in worldwide sales.
Payments to subsidiaries
Amazon said in its latest filings that it is being pursued for unpaid tax by the US and French governments. It faces $1.5-billion in additional federal taxes over a seven-year period, beginning in 2005, at a time when company accounts show it began to amass large amounts of cash in Luxembourg.
Amazon did not respond to requests for comment.
Like other multinationals, Amazon and Apple legally funnel revenues out of countries through payments to subsidiaries, typically in the form of loans or royalties for intangibles such as use of the brand or technology developed in-house.
France served notice in September for unpaid tax totalling $252-million, including interest and penalties, for the years from 2006 to 2010. As for the UK, and a number of other countries, Amazon's filings state it is or may be subject to investigations going back as far as 2003.
Prem Sikka, professor of accounting at Essex Business School, warned against leaving aggressive tax schemes unchecked: "If you erode the tax base you can't have any form of effective government. And once an industry is established, it becomes very difficult to get rid of it." – © Guardian News & Media 2013