Revealed: Amazon earns more through government grants than it pays in tax

Amazon paid less in UK corporation tax last year than it received in government grants, its official company accounts have revealed – sparking condemnation from MPs around the country.

In the latest example of systematic corporate tax avoidance by a large multinational company operating in the UK, Amazon has revealed that last year it paid just £3.1m in total taxes on sales of £4.2bn.

Its corporation tax bill was just £2.44m – less than the £2.5m it received from the Scottish Government in inducements to build a new distribution warehouse in Dunfermline.

The news comes as MPs say Google employees have turned whistleblower to describe how the Internet search giant misleads Britain's tax authorities over how much business they carry out in this country.

Giving evidence to MPs on the Public Accounts Committee the head of Google sales in Europe Matt Brittin insisted that all its sales were completed in Dublin.

This allows the company to pay tax at a lower rate than if the sales were completed in the UK.

But MPs told Mr Brittin that they had been contacted by former employees who described the extent of sales operations in the UK.

This includes pay-slips showing UK based staff being paid substantial bonuses depending on their 'sales' and evidence that big clients were being dealt with almost exclusively in the UK.

Last night MPs from all parties attacked Amazon’s tax stance, which they warned was harming UK- based high street retailers.

“Amazon’s behaviour is not only unfair, it is anti-competitive, putting British businesses that do pay their proper tax at a disadvantage,” said Margaret Hodge, chairman of the Public Accounts Committee (PAC).

“Paying £2.4m in tax on £4.2bn of sales is just a joke. What people will find particularly galling is that the amount Amazon is paying in tax is actually less than they are taking from UK taxpayers’ pockets in the form of government grants.”

The revelation about Amazon’s latest tax bill comes Google’s Vice President for Sales and Operations faced Parliament for the second timeto answer accusations that he misled the PAC over his company’s tax affairs.

In November Matt Brittin claimed that all his company’s sales team were based in Ireland and that the job of its UK staff was merely to market Google as an advertising space. The distinction allowed the company to pay just £6m of tax on £2.6bn of profits derived in the UK in 2011.

However an investigation by the news agency Reuters has suggested many of Google’s UK staff have job descriptions that would contradict this.

Today Mr Brittin denied trying to "disguise" the way its business operated to minimise its tax bill in the UK and insisted he stood by evidence he gave last year that all the firm's advertising in Europe was sold through its offices in Ireland.

Amazon manages to pay only a tiny fraction of its profits in corporation tax because all sales to British customers are routed through a Luxembourg affiliate, Amazon EU Sarl.

It is funded by fees it receives from Amazon EU and since these only just cover operating costs, little is left over for Her Majesty’s Revenue and Customs (HMRC) to tax. Amazon EU pays little tax in Luxembourg because it pays hundreds of millions of euros each year in fees to a tax exempt affiliate, also registered in Luxembourg.

Such practices are at the top of the UK Government’s agenda for its chairmanship of the G8 this year and will be discussed by world leaders when they meet in Northern Ireland next month.

It follows revelations about how little big name brands like Apple, Starbucks, Google and Microsoft pay in tax in markets where they reap billions of dollars in sales. The companies say they follow the rules but David Cameron and George Osborne are attempting to impose tighter regulations that would prevent the out-sourcing of profits to low tax jurisdictions.

The Conservative MP Charlie Elphicke, who has led a campaign against the tax practices of large multi-nationals condemned the Scottish Government inducements to Amazon. “It is a nonsense for the Scottish Government to be giving grants to Amazon to build a distribution centre that they would clearly have to build in the UK anyway,” he said.

“The idea that Amazon is based in Luxemburg defies belief.”

Liberal Democrat MP John Hemming said the figures showed the inadequacy of existing rules to tackle the problem of profit shifting by major corporations.

Amazon refused to discuss their tax affairs but said in a statement: “Amazon pays all applicable taxes in every jurisdiction that it operates within.”