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Amazon tax boycott

A few weeks ago a senior Google spokesperson was asked about the tax affairs of Google. By funnelling money through Bermuda the multinational was able to significantly reduce their corporation tax bill. His reply was something along the lines of  ‘well that’s Capitalism. If we can avoid paying tax, why shouldn’t we?”

To the pros and cons of capitalism, maybe we should add off shore tax avoidance.

But, if Capitalism enables firms to avoid paying tax, the other side of the coin is there’s nothing to stop consumer groups boycotting companies who are considered to unfairly reduce their tax contributions.

A few weeks ago, I wondered whether people would actually boycott the big companies like Amazon and Google.

This petition at change.org to make Amazon pay more tax has attracted over 100,000 signatures.

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The monopoly power of Amazon

In the late nineteenth century the firms with great monopoly power were the US railroads and oil companies. These days we have a new set of monopolies, companies like Google, Amazon.  For example, Amazon have over 30% of the online retail of books and DVDs.  Also a firm with monopoly selling power like Amazon can often create monopsony buying power. Iff you are an author, there are only a limited number of forms who will take your e-book and sell it for you. Given the little choice of firms to retail your product, puts authors and publishers in a weak position, meaning Amazon can dictate the amount they pay to authors – especially small independent authors.

 

Amazon market share of books in US

If you want to sell e-books, Amazon is a dominant firm. In 2012 in the US, Amazon has 27% of the market share for selling book units (traditional and e-books). (book publisher).

Share of online books, DVDs & music

For online sales, Amazon’s position is greater. With online sales, rising to 36% of the market.

Market Share of e-Book sales

For sales of e-books, Amazon’s share of the market is 60% in 2012 – (down from 90% in 2007). (link) Apple has 10%, and Barnes & Nobel 25%. Continue Reading →

Would People Boycott Google and Amazon over Tax?

Following on from a recent post about companies who avoid paying tax. It’s interesting to try and understand why some companies have been much more vulnerable to protest about the issue – but some companies seem almost insulated from protest.

For examples, Starbucks has been hit by high profile boycott. Protesters from UK Uncut have been making their voice heard both outside and inside Starbucks across the country. (It has proved good news for Costa, who have recorded a record jump in sales over recent weeks – Costa attract 4m customers a week at Guardian)

It seems there is a certain receptivity to boycotting a high street coffee shop like Starbucks. In Oxford, if you don’t want to go to Starbucks, there are three Costas all within a couple of minutes walk. As a result of the furore over tax payments, Starbucks brand image has definitely  been adversely affected. According to Market research, Starbucks is now less trusted than Parliament (link) and only slightly  more than News International.

respect-starbucks

However, interestingly, Amazon has been much less affected by the fallout than Starbucks. It’s much harder to organise a boycott of online companies. It’s more fulfilling to go on the high street and offer a physical protest. As a customer, there is a strong incentive to join in the boycott.

But, while we are happy to walk a few extra metres to buy a different coffee,  when it comes to the new monopoly Goliath’s of the modern age – Amazon and Google, would people feel strong enough about tax avoidance to look for alternatives?

Continue Reading →

Impact of Tax Avoidance by Amazon

Directors of big multinationals such as Amazon, Google and Starbucks received a challenging investigation by MPs annoyed that big multinationals are avoiding paying corporation tax. An Amazon director was described as being ‘deliberately evasive’ and being unacceptably ignorant of who owned the Luxembourg based Amazon company – used to avoid UK tax.

According to Conservative MP Charlie Elphicke, last year Amazon’s UK sales amounted to £3.9bn but the company paid just £1.9m in tax – the equivalent of just 2.5p%of its estimated profits, based on its global operating margin. Amazon can avoid paying tax by registering in Luxembourg. If you buy from Amazon, you will often notice some reference to its Luxembourg offices.

Rivals, such as John Lewis, argue that this clever tax avoidance will give Amazon an unfair business advantage. If corporation tax is 27% and you pay 27% of your profits to the exchequer, you will have much less money to invest, compared to say Amazon which retains a much larger share of its operating profit. The tax avoidance helps Amazon to

  • Cut prices – even to finance predatory pricing.
  • Invest more in new business capacity.
  • Expand in new products and expand their market share,

There is understandable concern and anger that large companies are able to avoid paying tax – even though there primary business activities are in the UK. Multinationals like Amazon benefit from public spending on roads and infrastructure, but avoid contributing to public funds.

Tax Avoidance and Monopoly Power

In a fast changing book market, Amazon is gaining substantial monopoly power in selling e-books and traditional books. Many existing retailers are struggling to compete with Amazon’s economies of scale and online presence. This monopoly power is being enhanced by their tax avoidance, which magnifies their supernormal profits.

Tax Competition

If tax avoidance can’t be stopped, there is a danger that European countries may be forced into tax competition (pressure to keep cutting corporation tax rates) to entice multinationals to set up in their country.

Note: tax avoidance is different to tax evasion. Tax avoidance are legal measures to seek to avoid paying tax. Tax evasion is illegal methods. However, with MPs on all sides claiming Amazon’s (and Google and Starbucks) methods are ‘immoral’. The government will be looking at ways to end tax loopholes and make firms based in the UK pay UK tax rates.

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