In his last letter to shareholders, Amazon founder Jeff Bezos wrote that for the company to avoid death, it must continue to act as if it is day one. “Day Two is stasis,” he opined. “Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day One.” Bezos has slightly less to say about corporation tax, but death is not the only inevitable the internet pioneer appears to have an aversion to.
In March 2012, The Bookseller published an investigation into Amazon’s tax affairs, concluding that the internet giant was limiting the tax it paid on the millions in profit it makes annually from its customers in Europe by charging itself - via a Luxembourg subsidiary - for the use of its own intellectual property. After a lengthy investigation, the European Commission (EC) agreed, concluding that Amazon inflated these payments, enabling the business “to avoid taxation on three-quarters of the profits it made”. It has demanded Amazon repay €250m (plus interest); Amazon says it is “considering its legal options”.
The decision is the second major reversal suffered by the business this year. In January the EC found the use of Most Favoured Nation (MFN) clauses in Amazon’s e-book contracts “may” have violated anti-trust rules.That judgment prompted Amazon to offer new e-book contracts with a commitment that it would not enforce an MFN for five years. At the time, I said the move had come five years too late, and that Amazon’s dominance of the digital reading market was too profound to be dented. I’ve seen little in the past eight months to suggest I was wrong. This latest ruling, though welcome, is little different: Amazon has built dominant positions in many markets in part by using tax loopholes in order to undermine local retailers. The agreement that enabled Amazon to reduce its profits dates back to 2003, when its international businesses had sales of $1bn - they are now at $44bn. To say this horse has bolted is to insult quick-witted equines everywhere. Even Amazon saw the writing on this barn door, altering its tax practices back in 2015.
Amazon is not the only tech company to take advantage of tax rules that have failed to keep up with globalised economies: Apple, Google and Facebook have faced similar probes. Two weeks ago a report published by the EC found that technology companies paid less than half the tax of bricks-and-mortar businesses. Few companies, though, have run so far on a promise of everyday low prices, subsidised by their own customers.
In his shareholder letter, Bezos says that Amazon should “have the scope and capabilities of a large company and the spirit and heart of a small one”. Yet in achieving the former, Amazon has neglected the latter.
Philip Jones is editor of The Bookseller.