Minister defends thinking behind Sunak’s ‘Amazon tax break’

Amazon warehouse

The government has defended new investment tax breaks that are likely to benefit Amazon, insisting that the tech giant’s low UK tax bill should be addressed through international action.

Oliver Dowden, secretary of state for digital, culture, media and sport, said there were “very serious questions” about the taxes paid by businesses such as Amazon, adding: “It concerns me enormously that companies like that can see such huge revenues generated in the UK and pay so little tax.”

Despite this he defended the £25 billion “super-deduction” scheme announced in the budget, giving companies an enhanced rate of tax relief on investments in plant and machinery. Tax campaigners have warned this could entirely “wipe out” the tax bill of Amazon UK Services.

Dowden said: “It is a good thing if companies are going to be investing in tech: that’s the point, to encourage companies to invest heavily while many of them, particularly in the tech sector, are sitting on very large amounts of cash. That will help drive tech growth. I don’t have a problem with that but I do want to make sure that everyone pays a fair share.”

Amazon reported UK sales of £13.7 billion in 2019 and said it paid £293 million in tax, although this was primarily national insurance contributions. It diverts some revenues through Luxembourg, where tax rates are lower, in a manoeuvre that reduces its tax bill.

Its UK sales surged to £19 billion last year as the pandemic drove demand for home delivery and forced its high street competitors to shut. Amazon is yet to declare its UK tax bill for last year.

Dowden said it was essential not to create an “unfair playing field” with high street shops that pay business rates and online retailers who do not and added that the digital services tax was an “interim” measure to address this.

But he argued that there needed to be a “global approach” to resolving Amazon’s low UK tax bill, citing “complex intellectual property-licensing regimes”. He said “It has to be done at an international level and the chancellor is making it a priority for the G7.”

The super-deduction will mean that for two years from April, investments in plant and machinery will get a 130 per cent capital allowance, knocking 25p off a company’s tax bill for every £1 invested.

Tax Watch calculated that Amazon UK Services, which provides warehousing and delivery services for its UK operations, would be able to reduce its taxable income to nil because of its increased spending in warehousing and logistics.

The company reported a pre-tax profit of £102 million in 2019 but spent £67 million on plant and machinery, £80 million on office equipment and £15 million on computer equipment. Tax Watch said: “If expensed at 130 per cent, this would entirely wipe out the taxable profits of the company.”

Amazon said: “We are investing heavily in creating jobs and infrastructure across the UK, more than £23 billion since 2010. This helped contribute to a total tax contribution of £1.1 billion during 2019, £293 million in direct taxes and £854 million in indirect taxes.”