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Amazon starts recording UK sales in UK, rather than Luxembourg

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Online retailer Amazon has confirmed that, from 1 May, it is now recording retail sales made to customers in the UK through the UK branch. Previously such sales were recorded in Luxembourg. Similarly, other sales made in its branches in Germany, Spain and Italy are also being recorded as having been made in those countries, and the company said it is ‘working on opening a branch for France’.

The move means that Amazon will now pay taxes in the UK on its sales to UK customers. In a statement, Amazon said it regularly reviews its business structure ‘to ensure that we are able to best serve our customers and provide additional product and services’, adding: ‘More than two years ago, we began the process of establishing local country branches of Amazon EU Sarl, our primary retail operating company in Europe.’

There is widespread speculation that the move is in response to expected regulatory changes, including the OECD’s BEPS project. The Financial Times (23 May) reported that the company ‘may also have faced extra pressure to increase its taxable presence by the 25% “diverted profits tax” introduced in April’.

Heather Self, partner at Pinsent Masons, said that changes to the VAT rules in the EU will also have influenced Amazon: ‘One of the main reasons for Amazon’s original choice of Luxembourg for its European headquarters was the low rate of VAT on sales of electronic books. With the changes to the VAT system from 1 January 2015, that advantage no longer applies, so the same rate of VAT applies whether items are sold by Luxembourg or by a local branch.’

Amazon warned that the new local company branches would not necessarily lead to large corporate tax payments. ‘E-commerce is a low-margin business and highly competitive, and Amazon continues to invest heavily around the world, which means our profits are low,’ it stated.

However, according to Reuters, ‘Amazon’s decision to change its tax-efficient European business structure could raise its tax bill by as much as $100m a year’, based to its calculations on reported profits and prevailing tax rates. But ‘authorities will have to fight for additional money and any payments will be hidden from public view’.

The Guardian (23 May) reported that the move by Amazon ‘will put pressure on others to follow suit – particularly Google, which routes its sales through Ireland’, with the newspaper noting that representatives from Amazon and Google ‘suffered two bruising encounters with parliament’s Public Accounts Committee over these arrangements’.

‘In the continuing battle between Europe and American tech companies, [it is] score one for Europe’, reported Mark Scott in the New York Times.

As Tax Journal has previously reported, the European Commission is currently conducting an ‘in-depth investigation’ over what it considers to be an ‘unorthodox’ tax deal by Luxembourg with Amazon. European competition spokesman Ricardo Cardoso said that the recent changes ‘do not affect the ongoing EU state aid investigation regarding the possible advantage that Amazon would potentially have received in the past through the tax ruling’.