Analysts say online retailer’s reserves have swollen as row rages over tax contributions
Record Christmas takings have swollen Amazon’s cash pile to as much as $9bn (£5.7bn), the online retailer is expected to declare on Tuesday in results that will inflame the debate over its tax contributions around the world.
In just 13 weeks, Amazon’s savings, which are held in cash and investments, have ballooned to between $7bn and $9bn, from $5.2bn in September, say analysts. The group’s performance helped topple a number of its UK high street competitors, with the camera shop Jessops and music store HMV going into administration earlier this month.
The UK generates an estimated 10% of Amazon’s revenues, pushing the proportion of the cash pile collected in the British Isles to an estimated $900m.
The retailer is under fire for paying low levels of corporation tax in the UK and other markets. With politicians across Europe casting about for ways to restore public finances, the sums are eye-catching. The issue will be forefront this week as parliament’s influential public accounts committee resumes its inquiry into tax avoidance by taking evidence on Thursday from the four largest accounting firms.
In the sights of many MPs are the major US companies that use a complex web of offshore havens to minimise their tax payments. Filings by Apple have revealed it is putting $1bn a week beyond the reach of the UK and US tax authorities. The iPhone maker has amassed $11bn in offshore havens in the last three months of 2012 and shielded $94bn from tax authorities around the world, mostly since 2005 when iPhone sales took off.
Wall Street is forecasting that Amazon enjoyed larger than ever revenues of $22bn for the December quarter. The retailer continued to win market share from high street retailers over the festive season, according to RJ Hottovy, an analyst at the US broker Morningstar who puts Amazon’s reserves at between $7bn and $8bn.
“Governments are looking to corporations more and more and re-evaluating what the appropriate tax balance should be,” said Hottovy. “It’s a very real risk for the company, but Amazon, given they have low costs and a sizeable cash position, will be well protected.”
The broker Sanford C Bernstein forecast $8.5bn in December, but says the total may have altered because the company has increased its debt. Debt payments can be offset against profits to minimise tax bills. Recent acquisitions may also have eaten into cash.
Morgan Stanley calculates $9bn in savings, with $6.8bn in cash and the balance in short-term investments such as shares, government debt and corporate bonds.
At the last count, more than $3bn was held in foreign currencies, including euros, sterling, Japanese yen and Chinese yuan.
In three years from 2009 to 2011, Amazon earned more than £7bn in the UK but paid just £2.3m in corporation tax, despite employing 15,000 people in the country, thanks to a scheme which drives sales through a European head office in Luxembourg.
Its most recent published earnings are for 2011, when the UK generated £3.35bn in sales, around a tenth of its $48bn in worldwide sales.
Amazon said in its latest filings that it is already being pursued for unpaid tax by the US and French governments. It faces $1.5bn in additional federal taxes over a seven-year period, beginning in 2005, at a time when company accounts show it began to amass large amounts of cash in Luxembourg. Amazon did not respond to requests for comment.
Like Google, Starbucks and other multinationals, Amazon and Apple legally funnel revenues out of countries such as the UK and France through payments to subsidiaries, typically in the form of loans or royalties for intangibles such as use of the brand or technology developed in-house.
France served notice in September for unpaid tax totalling $252m, including interest and penalties, for the years from 2006 to 2010. As to the UK, and a number of other countries, Amazon’s filings state it is or may be subject to investigations going back as far as 2003.
Prem Sikka, professor of accounting at Essex Business School, said HM Revenue and Customs could claw back some of Amazon’s savings by checking whether payments between its companies for items such as royalties were set at a fair price.
“Part of the reason for these cash piles is that companies have participated in complex structures and avoidance schemes to shelter profits from UK corporate tax, and there is no reason why HMRC cannot investigate this. HMRC is perfectly entitled to challenge the basis of any calculation.”
He warned against leaving aggressive tax schemes unchecked: “If you erode the tax base you can’t have any form of effective government. We have allowed a very deep tax avoidance industry to become established and once an industry is established it becomes very difficult to get rid of it.”