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Why Amazon's UK Tax Bill Has Dropped 50% (bbc.com) 139

An anonymous reader quotes a report from BBC: Amazon has seen a 50% fall in the amount of UK corporation tax it paid last year, while recording a 54% increase in turnover for the same period. This snippet of news raised eyebrows this morning when it was revealed. So what's going on? Taxes are paid on profit not turnover. It paid lower taxes because it made lower profits. Last year it made 48 million British Pounds (BP) or ~$62 million U.S. dollars (USD) in profit -- this year it made only 24 million BP or ~$31 million USD so it paid 7 million BP (~$9 million USD) tax compared to 15 million BP (~$19 million USD). What is more interesting is WHY its profits were lower. Part of the reason is the way it pays its staff. Amazon UK Services is the division which runs the fulfillment centers which process, package and post deliveries to UK customers. It employs about 16,000 of the 24,000 people Amazon have in the UK. Each full-time employee gets given at least 1,000 BP (~$1,297 USD) worth of shares every year. They can't cash them in immediately -- they have to hold them for a period of between one and three years.

If Amazon's share price goes up in that time, those shares are worth more. Amazon's share price has indeed gone up over the past couple of years -- a lot. In fact, in the past two years the share price has nearly doubled, so 1,000 BP (~$1,297 USD) in shares granted in August 2015 are now worth nearly 2,000 BP (~$2,595 USD). Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue -- so profits are lower and so are the taxes on those profits.

Why Amazon's UK Tax Bill Has Dropped 50%

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  • by Gaccm ( 80209 ) on Friday August 11, 2017 @06:15AM (#54989649)

    The compensation relevant for taxes is the 1000 GBP the stock is worth when Amazon gives it and not its value at the end, right?

    • My thinking exactly. I'm no accountant (far from) but I doubt you can register inflated shares as "expenses"..
      • by Ash-Fox ( 726320 )

        My thinking exactly. I'm no accountant (far from) but I doubt you can register inflated shares as "expenses"

        Are you intentionally being dense?

        The summary even accurately described the figure is based on profit, not turnover and then in the very last sentence, "Staff compensation goes up, compensation is an expense, expenses can be deducted from revenue".

        • Re: (Score:2, Insightful)

          by Anonymous Coward

          expenses can be deducted from revenue

          But in this case, the expense is not fixed.

          case 1) If AMZN buys/allocates 1,000 BP shares at time T for the employee and holds them in a safe somewhere, it's expense is 1,000 BP. AMZN deducts 1,000 BP from revenue as expense.

          case 2) AMZN buys 2,000 BP shares at time T+2 years. AMZN deducts 2,000 BP from revenue as expense.

          case 3) AMZN buys 1,000 BP shares at time T. AMZN deducts 2,000 BP from revenue as expense for year T+2years.

          Case 3 is obviously fraudulent.

          • by schini ( 4144155 )
            Neat breakdown.
            case 3) is - as you said - obviously fraudulent, I would never believe Amazon would be stupid enough to attempt something like this.
            case 2), while not actually fraudulent in relation to the tax thing, is highly unlikely I guess, since the shares "given" to the employees on a certain date would have to exist "at this point in time", otherwise it would be kind of fraudulent towrds the the employee (unless the summary somehow was not accurate concerning the shares)

            => I think we need to a
          • Well, there is no way to deduct based on a future price, and you must deduct an expense when you incurr it, I think tax law is pretty concise in this area, at least it is in the US. From the article, it appears Amazon is deducting the expense at market price the time it is given. Which is fair. They are paying less taxes because they are paying their employees more.
            • There you go with your concise, accurate depiction of the state of things.

              Now there's nothing more to squabble about...

              except the evil US online retailer that's cheatin' us, mate!

          • by Ash-Fox ( 726320 )

            But in this case, the expense is not fixed.

            You just put down what your expenses were at that point in time when you paid out, just like any other expense... Why is this so hard to grasp?

          • I'm not sure that Amazon buys any stock for this - I'm pretty sure they just print it, diluting the value for everyone else. It's not really a cost to Amazon's business at all.

            Really business taxes on profit should be on the high side and businesses should be encouraged to minimise their taxes/profits by paying their workers more or investing in infrastructure

      • It is, technically, a liability and thus shows up on the expense side of things. As your liabilities increase, they offset accrued profits of the company.
    • by Shimbo ( 100005 )

      The article didn't make a whole load of sense to me. Amazon can give away £1000 of shares and the employess don't pay tax as long as they hold them for 5 years. https://www.gov.uk/tax-employe... [www.gov.uk]

      The employee may end up paying capital gains tax on the sale if they end up with a pile of shares and sell them in one tax year. The first £11 000 or so of profit is free, so unlikely to be an issue for most people.

      But Amazon have found a neat trick to avoid corporation tax which is actually paying your e

      • I re-read some of it and agree. They are paying their employees more by giving them an additional stock 'bonus' each year, therefore showing less profit and paying less taxes.
    • by hord ( 5016115 )

      It would depend on British law. In the US you have to exercise the option and turn it into actual stock before you have a tax liability. It's possible that British law just includes stock options are part of your overall compensation and uses some nominal market value to report it. It does seem weird to me to include non-vested options in a dynamic financial instrument as "compensation" even if it is used to supplement actual money.

      • by rtb61 ( 674572 )

        From the article "Each full-time employee gets given at least £1,000 worth of shares every year." Those are not stock option, the option to buy shares some time in the future at a defined stock option price, lasting the life of the stock option. They are being paid in shares as a bonus, as it can not be included in the normal award rate, as the stock has no real defined value until it is actually traded. It is questionable, that Amazon being allowed to tax deduct the share payment, is questionab

        • by hord ( 5016115 )

          This whole thing is strange because it mentions that they have to vest for two or three years before cashing out. It sounds like Amazon is both taking advantage of share dilution and a loop-hole for tax-free payments via stock. It ends up working out for the employee because they don't pay taxes on the "income". I guess in the US that would probably be taxed at 15% under capital gains but IANATL.

        • Amazon has a vested interest in keeping their share price movement upward, a whole lot more than they would gain from dilution to offset this employee bonus tax deduction. They are simply doing what many other companies do and have been doing for a long time. The only difference is that Amazon is big and its popular to make them the villain. They are increasing employee compensation and paying less taxes.
          • by rtb61 ( 674572 )

            Amazon is making use of an existing loop hole purposefully created by corrupt banks, the monarchy and the UK government. The tax cheating does not really count for the $1000 share issues but for a multi-million dollar share issue to insiders, a tax deduction without any taxes being paid ever, except on the dividend those shares earn, well, as long as they are not transferred to a tax haven location and than the dividend is no longer taxable. So not much to do with Amazon and more to do with high level insti

            • but for a multi-million dollar share issue to insiders, a tax deduction without any taxes being paid ever, except on the dividend those shares earn,

              I think you assume stuff is happening that isn't. Taxes are paid on the stock gift amount as income, only the increases are taxed as capital gains, or decreases as losses, from the legally defined time of issuance. Individuals pay income taxes on that compensation, not corporations.

              • by rtb61 ( 674572 )

                You have to have a capital gain before you can tax it, so zero taxes are paid until the shares are sold, yet they earn the equivalent of bank interest, hmmm, something definitely suss going on their, I wonder who it benefits, the poor earning a pittance on bank interest or the rich earning millions as off shored tax haven dividends, paying for their luxury holidays basically with the taxes of the poor.

      • by hsmith ( 818216 )
        Depends. Vested stock is treated differently than just options. Options are taxed when exercised. vested stock, you are taxed when it is fully vested since there are restrictions on it (i.e. vesting).
    • I don't know how UK law works, or whether Amazon UK did something like this (assuming it is possible), but something like this is common in US tech companies. It's called a stock option grant.

      A stock option is a contract that one party fulfills by selling some number of shares of the stock to the other other party for a given price. For a typical tech employee, this takes the form of an incentive stock option, where the employee usually has to stay employed (perhaps full-time) in good status (rather than

      • In the UK the companies gve actual shares, not options.

        • by Entrope ( 68843 )

          Interesting. In the US, that would count as ordinary income in the year the stock was given; the tax effects make it an uncommon practice. We don't have anything like the £3,600 exclusion that is mentioned in the article. US companies also (as far as I know) can't restrict how long the employee works for the company before selling an actual share that has already been granted. Perhaps the Amazon UK write-off is related to how they structure that incentive scheme.

          • Interesting. In the US, that would count as ordinary income in the year the stock was given; the tax effects make it an uncommon practice

            False, on both counts.

            In the US, such stock grants are called Restricted Stock Units [investopedia.com] (RSUs), and they're actually quite common in large tech companies, and in some other parts of industry. My employer (Google) grants them, and I get them; in fact they constitute about a third of my income.

            The way it works is that the grants vest on some schedule. For example, each year after my performance review I'm given another bloc of RSUs, on a four-year vesting schedule. Each month, 1/48th of each grant vests. At

            • I said "given", not granted. Until your option or stock vests, ask you own is a piece of paper.

              And RSUs are uncommon in general. They are recently popular in Sili Valley, but otherwise about as common as defined-benefit pensions in private companies.

              • I said "given", not granted. Until your option or stock vests, ask you own is a piece of paper.

                You should use unambiguous language.

                And RSUs are uncommon in general. They are recently popular in Sili Valley, but otherwise about as common as defined-benefit pensions in private companies.

                I've had them at three companies, only one of which is in SV, or has any relation to SV.

          • by green1 ( 322787 )

            Not in the UK, and we have no £3,600 exclusion, however I do get given shares, and I am not allowed to sell them before the end of the year (I don't think it's contingent on how long I work for the company, just that I have to hold them for a specific length of time before selling)

        • Not true. It can be either. I have been given both in the past.

    • The compensation relevant for taxes is the 1000 GBP the stock is worth when Amazon gives it and not its value at the end, right?

      all speculation here....Its possible that it does not count as income until the employee actually sells it, which would simply be a deferral. Taxes received would be higher or lower as well according to the stock price at the time of sale. It would get complicated if the employee could claim it as capital gains, but I don't think that would be allowed (don't have a clue about UK capital gains rules though)

  • So, if the stock goes down, will Amazon have to pay higher taxes? That doesn't make much sense..
    • by Ash-Fox ( 726320 )

      So, if the stock goes down, will Amazon have to pay higher taxes?

      As long as their overall profits are higher due to not needing to pay employees extra benefits (or just generally) etc. Yes.

    • So, if the stock goes down, will Amazon have to pay higher taxes? That doesn't make much sense..

      No. Amazon's taxes should not change no matter what the stock does, they deduct that expense when they pay the employee just like they deduct any salary or bonus. If it goes up the employee pays more taxes on it when they cash it out.

      • So, if the stock goes down, will Amazon have to pay higher taxes? That doesn't make much sense..

        No. Amazon's taxes should not change no matter what the stock does, they deduct that expense when they pay the employee just like they deduct any salary or bonus. If it goes up the employee pays more taxes on it when they cash it out.

        Not if UK income tax law works like US income tax law (and the article implies it does). Such stock grants are not considered income to the employee or an expense to the company until they vest, which happens well after the grant and on some specific schedule.

        In the US, these are called Restricted Stock Units. http://www.investopedia.com/te... [investopedia.com]

        • Well something must not be correct because the article claims they are legally taking the expense. Maybe there are alternative legal ways to account for that expense. Thanks for the added info.
    • It makes sense if Amazon holds the stock and then gives it to the employee, losing an asset.

      It doesn't make sense if Amazon issues new stock, since that creates an asset (and dilutes the share value). That new asset is income to Amazon, then is handed over and is an expense; if it's issued directly to the employee, then the value of that income-expense is net-zero and it shouldn't get them a tax discount.

  • Capital gains (Score:5, Interesting)

    by GeekWithAKnife ( 2717871 ) on Friday August 11, 2017 @06:25AM (#54989679)

    So when employees cash out they will have to pay tax. In the UK once they convert assets to fiat they will have to pay 20%

    The interesting this about this is that you can earn A LOT more than than the usual 20% tax bracket and still pay 20%

    The company is essentially pushing tax deductions on the employee with the employee seeing this a great deal to pay less tax as well...maybe even make profit as stock appreciates. It all falls apart however when share price goes sharply down and people may end up earning less than they thought they will AND pay tax on it when they cash out.
    • by Anonymous Coward

      Capital gains has thresholds too, there's an allowance of 10k or so with 0% tax, So lower paid individuals paid this way, who don't have lots of other shares or other appreciating assets sold in the same year, might do quite well out of it.

    • How is this different than any other company that gives their employees stock as part of compensation? Its not that unusual. The author is making it out to be some kind of trick. Amazon is paying their employees more, paying less taxes.
    • by Anonymous Coward

      Not true. You only pay capital gains if your _profit_ (not the total value of shares but how much they have grown since you acquired them) is over £10000 or so.

      So majority of employees who get £1000 won't pay capital gains tax at all.

    • So when employees cash out they will have to pay tax. In the UK once they convert assets to fiat they will have to pay 20%

      FWIW, if you're right about UK law, this works differently in the US. Stock grants are considered regular income to the employee (and an expense to the company) at the point in time when they vest. At time of vesting, a fair market value (FMV) is assessed (usually the stock price at closing on the day before the vesting date, IIRC), and that amount of money is counted as part of the employee's gross income. If the employee holds onto the stock for another year before selling, and the stock price goes up, th

    • The interesting this about this is that you can earn A LOT more than than the usual 20% tax bracket and still pay 20%

      Everyone focuses on this side of capital gains taxes, never the flip side. I think the flip side is the more important one.

      If you're in a lower tax bracket, you still pay 20% capital gains tax. This has the effect of discouraging middle- and low-income people from investing in stocks. And since stocks on average have a much higher rate of return than interest in a bank savings account

  • That's not right... (Score:4, Informative)

    by Arbitary5664 ( 1979712 ) on Friday August 11, 2017 @06:34AM (#54989707)
    Firstly, any stock awarded to an employee in the UK is immediately given a "Fair Market Value" evaluation -- again that's ***on award***. So, if you get given 1,000 GBP worth of stock tomorrow, and you pay nothing for it, the UK will tax you at whatever your income rate is for that 1000 GBP. Secondly, if the stock goes up, you get taxed _again_ when you sell it. The company isn't paying shit in taxes for this, mind you, they're passing it on to the employer -- and the company has it's asset liabilities frozen from the time of award. The only exception is occasionally on something called 'Held Shares', which generally the plebs of a business do not fucking get access to and _still_ require that initial up-front on-award payment.

    So, whatever Amazon is doing, it's still just fleecing the UK out of tax revenue. Meanwhile, the lower classes of British people are all applauding a minor adjustment of their shitty flattax that favours the wealthy, entirely forgetting that the ultra rich (which this supposed tax change is aimed at) get paid in _assets_ not via a monthly paycheque. Pay is billed at 15%, 25%, 40%, and 45% from ~15k, 25k, 40k, and then 150-fucking-k. Basically anyone over 40k loses half their wage to taxes, and has to pay 20% VAT. Meanwhile, assets if held are taxed at. ~15%. :)

    People in the UK are surprisingly fucking retarded about tax.
    • Err passing it on to the -- s/employer/employee. And a minor addition: The point being companies are paying LESS tax, people are paying MORE tax, and they don't get that it's basically them getting fleeced. It's as if collecting tax will suddenly stop Amazon, Microsoft, Google, and whomever else from operating in the UK entirely. Cowards.
      • Err passing it on to the -- s/employer/employee. And a minor addition: The point being companies are paying LESS tax, people are paying MORE tax, and they don't get that it's basically them getting fleeced. It's as if collecting tax will suddenly stop Amazon, Microsoft, Google, and whomever else from operating in the UK entirely. Cowards.

        The people are only paying more tax because they are making more money. That's how it works. Amazon is making less profit, paying employees more, and paying less taxes. Employees are making more, how much more depends on the value of stock when they sell it. I honestly think some people here would rather have Amazon not pay these bonuses to employees, and make more profit just so they can pay more taxes.

    • by Entrope ( 68843 )

      Secondly, if the stock goes up, you get taxed _again_ when you sell it. The company isn't paying shit in taxes for this, mind you, they're passing it on to the employe[e...]

      That's how capital gains work. Say I pay 1000 GBP for stock, or someone buys it for me at that price. That becomes my "cost basis" for the stock. The market value of that stock increases to 2000 GBP. I have 1000 GBP of capital gains, and if I sell at that price, I pay taxes on that gain. The company doesn't owe taxes on that gain be

    • If it is the same UK where I work and pay taxes, then pay is billed at 20%, 40% and 45% from ~11.5k, 33.5k and then 150-fucking-k.
      • You're right -- the original measures in the post were wrong and the correct measures can be found here: https://www.gov.uk/income-tax-... [www.gov.uk]; they mirror what you say and I stand corrected
        That said, the tax brackets do not really matter, other than this: There is basically a flat tax in the UK -- it hits anyone who isn't in the most remedial of jobs. The difference between 40 and 45% from 33.5k - 150k is pointless, particularly for people at the 150k side of the scale. However, 40% tax on money over 33.5k i
        • the 40% tax kicks in at 44k-ish not 33k, you're forgetting about the 11k tax free threshold below which you don't pay any income tax.
          • Again, doesn't really seem to matter -- but that is correct. The UK has a highish flat tax, and that's pretty shitty for most people.
    • In reality, someone with about 60k salary will lose to the taxman ~17.5k, which is not exactly half. Bear in mind that this includes access to healthcare free as in beer.
      • Also, a good point -- but it's 1.) healthcare that wants to remove you from the system as soon as possible as it's horribly overloaded, and 2.) the cost of private care in the UK is extremely cheap (relative to places like the US).
    • Its not fleecing the UK. It is perfectly legal and common practice. It is compensating employees with stock vs cash in proportion to what makes the best business sense according to established law. There is a reason that a large majority of most employees pay is still the traditional paycheck. Bonuses in the form of stock are desirable to employers and employees. Change the laws and the ratio of stock bonus to paycheck would change accordingly. The number you cited drive the behavior, but its not fleecing
    • Firstly, any stock awarded to an employee in the UK is immediately given a "Fair Market Value" evaluation -- again that's ***on award***. So, if you get given 1,000 GBP worth of stock tomorrow, and you pay nothing for it, the UK will tax you at whatever your income rate is for that 1000 GBP.

      Are you sure? The US does it differently, and in a way that is much fairer and seems more consistent with the article.

      In the US, the FMV is assigned at vesting, not at date of grant. This is much better, because at vesting some of the shares can be (and generally are) automatically sold and withheld to cover income taxes, reducing the chance that the employee gets ambushed with a huge tax bill.

      Also, the structure you describe seems very weird when lined up with the article, because apparently (per you),

      • > Are you sure?

        Yes. And it is bullshit.

        Let's say you were given 1,000 shares of MSFT, today, at $72.50 -- the total award is worth $72,500. However, they make you pay half of that as an option. Your 'gain' in that case is $36,350. This is then converted to some GBP value, and then you are assessed, immediately, on that amount of tax being owed to the HMRC. It's counted directly as income -- even though it has never been realised, etc. As for how the company claims this on their balance sheet, I h
  • BP? (Score:5, Informative)

    by stealth_finger ( 1809752 ) on Friday August 11, 2017 @06:36AM (#54989715)
    Seriously? Use the very standard GBP if your keyboard doesn't have a £. Maybe if it doesn't you can go on amazon and spend some AD on a new one.
    • Eh.... I'm just surprised that the editor/submitter took the time to fix the UTF errors even if they didn't get the proper abbreviation in there. At least it's not filled with instances of £

    • He certainly managed to find the $ key
  • by Anonymous Coward

    and buy from UK Based retailers that pay proper tax.
    If you don't then there won't be any retailers left and Amazon will have won.

    • by antdude ( 79039 )

      Same for USA! I like to visit local stores and buy if the prices are right for the products they have in stock. Even pricematching!

  • The employees are rewarded with shares that keep increasing in value. Why are the shares increasing in value? Because Amazon's expenses are so low. Why are Amazon's expenses so low? Because it skimps on employee salaries. How does it manage that? By giving the employees shares.

    Ponzi scheme
    n noun a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.

    ORIGIN

  • In other words (Score:5, Insightful)

    by GrumpySteen ( 1250194 ) on Friday August 11, 2017 @07:35AM (#54989889)

    "Hey, let's give corporations tax deductions for the cost of stocks they give to their CEOs!"
    "Jolly good idea! CEOs can barely afford a third vacation house and a private jet. They need more shares of stock!"

    ...time passes...

    "WTF? Why are we giving corporations tax deductions for the cost of stocks given to the peasants? This is an outrage!"

    • Or even better:

      "Hey, Amazon and other companies pay crap salaries and have crap benefits; their employees even live in tents in the office park."

      ...time passes...

      "Hey Amazon is compensating their employees better and they pay lower corporate taxes because of it; the need to stop that right now!"

      (BTW, in the entire civilized world employee compensation is a normal business expense and pretty much no matter how you compensate the employee, the business gets to deduct the cost of salary and

  • The ISO code for British pounds is GBP, not BP.

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