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This week in tax: Amazon’s UK tax bill rises with sales surge

Amazon may be about to open up its tax files

This week US online shopping company Amazon reported its 2020 tax bill had risen after its UK sales surged during the COVID-19 pandemic.

Amazon has paid more than £1.5 billion ($2.08 billion) in UK tax after lockdowns saw demand for deliveries skyrocket in 2020. This includes almost £500 million in direct taxes including corporation tax and stamp duty, and £1.06 billion in indirect taxes such as employee taxes and VAT on sales.

The US company saw its sales rise by 50% to more than £20.6 billion in 2020 from £13.7 billion in 2019. However, Amazon continues to face scrutiny over its tax arrangements.

“As usual the accounts are legally compliant but opaque and lack the crucial information about intra-group transactions which enable the company to shift profits is not there,” said Prem Sikka, Labour peer and emeritus professor of accounting at Sheffield University, in a BBC interview.

“It’s impossible to know what their true economic profit is,” said Sikka. “We need a complete change in accounting regulations which currently increase opacity rather than transparency.”

Nevertheless, Amazon has made a point of publicising the tax payments. “We are proud of the significant economic contribution we are making to the UK economy,” said Amazon in a press statement.

“Looking ahead, we know that the UK remains full of opportunity and we continue to be excited by the potential to continue to invest, create jobs, develop talent and have a positive impact in communities across the country,” said the company.

Amazon stressed its commitment to the UK, including investing more than £32 billion in infrastructure since 2010. The company employs 55,000 people in the UK alone.

The debate on how to best tax online commerce will continue to rage, but the OECD is closing in on an agreement to settle some of the disputes over digital tax.

ITR headlines this week include:

Cooperative compliance marks a ‘quiet revolution’

MNEs use shared service centres to bolster digitalisation projects

Tax incentives pave the way for India to become a global manufacturing hub

Companies reckon with the Indian Supreme Court ruling on taxing software

MNEs use shared service centres to bolster digitalisation projects

Multinational enterprises (MNEs) can move global tax and finance teams to a shared service centre (SSC) to aid tax digitalisation projects, according to panellists at ITR’s Asia Tax Forum.

Moving tax teams to an SSC in a low-cost location could help MNEs to improve efficiency and minimise tax risks, according to in-house and advisory tax professionals on a panel at ITR’s Asia Tax Forum. Tax directors are facing increasing requirements from governments as the digital economy grows and tax authorities scrabble to prevent tax avoidance and profit shifting.

“We are getting more and more demands from a statutory perspective, so the tax world is becoming more challenging with the limited resources,” said one tax director at a large MNE.

Panellists said that these demands are linked to tax authorities seeking more data about taxpayers to monitor high-risk cases, through projects such as Australia’s Smarter Data and the UK’s Project Connect.

Luis Carrillo, senior director of tax and transfer pricing solutions at the analytics company Bureau van Dijk, said that there are approximately 20 big data and digitalisation projects ongoing in tax administrations across Europe, Asia, and Latin America.

“Many governments are investing significant amounts of money in basically implementing technology-based solutions that can amalgamate all the different sources of information… and put it into platforms from where they can build tools to better risk assess taxpayers,” said Carrillo.

MNE taxpayers are responding to increasing demands from tax authorities by consolidating tax teams from different countries. Businesses often locate an SSC in low-cost regions, and Eastern Europe and India are particular favourites.

One panellist, a tax director at a large MNE, said that in their experience, migrating tax teams to an SSC has minimised costs and risks while improving efficiency and accuracy.

Read the full article here

Tax incentives pave the way for India to become a global manufacturing hub

The Modi government hopes to expand the Indian manufacturing sector and turn the country into a global hub for manufacturing through a range of tax incentives.

The Indian economy has been lagging on the manufacturing front with its contribution to the overall GDP far behind the global average. The Indian government introduced the performance link incentive (PLI) scheme to incentivise the minimum scale of investment and turnover in the manufacturing sector and make them cost-competitive.

A sum of $27 billion was set aside in the Union budget of 2021-22 to provide this incentive for 13 key sectors such as food processing, medical devices, pharmaceuticals etc., for a period of five years.

The scheme comes with strings attached, including a compound annual growth rate (CAGR) target. While these incentives are welcome, industry leaders in certain sectors feel the need for changes to fit the specific needs of certain sectors.

“In the food processing industry, certain product categories like noodles are not eligible for the PLI benefit. This is despite a demand for Indian flavours of noodles in the international market,” said the head of tax at an Indian food processing company.

“Secondly, the scheme carries a CAGR achievement for getting your incentive for that year. Since it's a scheme that's spread over five-six years, CAGR should be considered over a period instead of annually,” said the head of tax at ITR’s Asia Tax Forum.

The PLI scheme is just one part of the government’s fiscal effort to expand the manufacturing sector. The other measures cover the full range of tax policy from transfer pricing to indirect tax.

Read the full article here

Next week in ITR

ITR will be looking at the growing importance of tax transparency for attracting investment. Transparency has become a key focus for businesses trying to minimise regulatory and reputational risk, and tax is a particularly contentious area. The days of financial secrecy may be numbered, at least when it comes to tax policy.

ITR will be revisiting Brazil’s tax reform and the future of transfer pricing in the country. Brazil has long been an international outlier with its formulaic system. Yet just as the OECD is moving towards a more formulaic approach to tax, the Brazilian government is pushing in the opposite direction.

The results of ITR’s diversity and inclusion survey will be coming out next week. The forthcoming autumn edition of ITR will include a landmark feature on the state of diversity in the tax profession. This follows on from the 2020 survey on the same topic.

Readers can expect these stories and plenty more next week. Don’t miss out on the key developments. Sign up for a free trial to ITR.

More from across our site

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Businesses need to improve on data management to ensure tax departments become much more integrated, according to Microsoft’s chief digital officer at a KPMG event.
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Tax directors warn that a lack of adequate planning for VAT rule changes could leave businesses exposed to regulatory errors and costly fines.
Tax professionals have urged suppliers of goods from Great Britain to Northern Ireland to pause any plans to restructure their supply chains following the NI Protocol Bill.
Tax leaders say communication with peers is important for risk management, especially on how to approach regional authorities.
Advances in compliance tools in international markets and the digitalisation of global tax administrations are increasing in-house demand for technologists.
The US fast-food company has agreed to pay €1.25 billion to settle the French investigation into its transfer pricing arrangements over allegations of tax evasion.
HM Revenue and Customs said the UK pillar two legislation will be delayed until at least December 2023, while ITR reported on a secret Netflix settlement and an IMF study on VAT cuts.
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