This content is from: Direct Tax

This week in tax: Amazon’s tax filings reignite tax avoidance debate

This week, Amazon’s Luxembourg tax filings reignited the debate about corporate tax avoidance while Colombia demonstrated the dangers of regressive taxation and the debate about an EU carbon border continued.

During 2020 Amazon made 44 billion ($53.3 billion) in sales across Europe and yet the US company did not have to pay corporate tax in Luxembourg, from where it operates across EU markets. This is because Amazon EU Sarl made a 1.2 billion loss in Luxembourg.

As a trading platform Amazon sells goods across the region through Luxembourg, including to key markets France, Germany and the UK. However, the loss made by the Luxembourg unit led it to receive 56 million in tax credits to offset future tax costs if it becomes profitable. The unit also has 2.7 billion in carried forward losses stored up.

The US company stressed that its international tax strategy is above board. “Amazon pays all the taxes required in every country where we operate,” an Amazon spokesperson told the press.

“Corporate tax is based on profits, not revenues, and our profits have remained low given our heavy investments and the fact that retail is a highly competitive, low margin business,” said the spokesperson.

“We’ve invested well over €78 billion in Europe since 2010, and much of that investment is in infrastructure that creates many thousands of new jobs, generates significant local tax revenue, and supports small European firms,” they added.

Tax directors often find news stories like this frustrating because there is still a significant gap between the letter of tax law and the public perception of corporate tax avoidance. This means that companies can be denounced in the media despite their tax conduct being legal.

It may seem like just another headline about tax avoidance, but the story touched a nerve because COVID-19 has seen online retailers make a fortune. This story is a reminder of why the OECD is racing to find an international solution to taxing the digital economy.

Top stories this week include:

EU carbon border could trigger taxes around the world

US shift on pillar one is a chance for ‘tax peace’, says Saint-Amans

How COVID-19 is affecting VAT and GST trends

Tax authorities are coming for cryptocurrencies

Colombia’s tax revolt

It is not often that protests break out over tax reform, and yet Colombia has had demonstrations for almost 10 days over tax. People are protesting tax measures that they see as regressive while facing the economic fallout of COVID-19.

Colombian President Iván Duque is pursuing tax reform to secure Colombia’s investment grade amid the dire impact of the COVID-19 pandemic. The country faces a ballooning deficit and a contracting economy.

Duque has ambitions to claw back billions in revenue lost to tax exemptions, particularly exemptions in the VAT regime that cost the government $20 billion a year. A lack of tax reform could see Colombia sink to junk status among credit agencies such as Fitch Ratings and Moody's.

However, the response from some Colombian taxpayers has been to take to the streets in cities like Cali and even end up in scuffles with police. The government has seen its finance minister resign this week in response. It may be that Colombian tax reform will be postponed or dropped.

Carbon border

Multinational enterprises (MNEs) could face supply chain headaches and an increased compliance burden if the EU’s carbon border adjustment mechanism (CBAM) is introduced in the summer of 2021, as planned. The carbon border is also likely to trigger a wave of carbon taxes from countries seeking to protect domestic industry and maintain their tax base.

“A failure by the UK to coordinate or keep pace with the EU’s level of policy stringency for industrial sectors could risk important UK exports being penalised by the CBAM,” said researchers from the London School of Economics.

Rather than allow important exports to be taxed at the EU border, revenue authorities could seek to improve environmental regulations, and tax professionals expect carbon taxes to be a part of any regulatory changes.

“If the EU CBAM happens and doesn't exclude low income countries, African governments will have a choice between taxing carbon and raising revenue themselves, or having the carbon taxed by the EU,” said Arun Advani, assistant professor in the department of economics at Warwick University.

“This will be an additional push towards taxing carbon domestically themselves,” added Advani.

An EU carbon border is looking increasingly likely as carbon prices climb and industry support for the CBAM grows. In March, the steel and mining company ArcelorMittal called for a CBAM amid concerns from industry that climbing prices in the EU’s emissions trading scheme (ETS) are putting European businesses at a disadvantage against international competitors.

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Next week in ITR

ITR will be taking an in-depth look at MNEs moving warehousing from the UK to EU member states following Brexit, to avoid double duties. The UK’s days as a European distribution hub may be behind it.

Meanwhile, the UK government is considering changes to TP documentation requirements. HM Revenue and Customs (HMRC) may be about to increase the compliance burden for businesses. Luckily for multinational enterprises, the impact should not hit large businesses as hard as their smaller counterparts.

Readers can expect ITR to continue its coverage of the OECD’s two-pillar blueprints for digital tax reform. Next week, ITR will be looking at the impact of pillar two on developing economies around the world.

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