Tax Relief

MP-backed push to cease tech giants claiming to thwart tremendous withholding tax breaks

A move by Labor MPs to prevent multinational tech giants from taking advantage of tax breaks through the government’s “super deduction” policy has failed, amid fears the system could be used by tech companies like Amazon to help them Further minimize corporation tax paid in the UK.

MEPs have been called on to vote on a number of proposed amendments to the upcoming 2019-2021 finance law. Among them was a proposal aimed at preventing technology companies that fall within the scope of government tax policies for digital services from making capital deduction claims through the super-deduction system.

The amendment, tabled by Labor leader Keir Starmer with the support of five other Labor MPs, did not receive the required number of votes to implement the proposal when it voted on Monday, May 24, 2021.

This means tech companies that have to pay the tax on digital services can continue to use the super-deduction to claim tax breaks when purchasing equipment and machinery, although there is growing concern that this could provide a way for companies like Amazon to reduce costs to significantly minimize the amount of tax they pay in the UK.

“As the bill is, the one [super-deduction] will end the work Amazon started and pay off the last taxes it had to pay on the few parts of its business whose profits it could not move overseas, ”Labor MP James Murray said during the House of Commons debate before the vote on Monday.

“A vote for our amendment would prevent Amazon and a small number of similar companies from giving away public money – public money that could be better spent on so many purposes, including helping UK companies that have had problems in the past year.”

Why should technology companies be stopped from using the super-deduction?

The super-deduction announced in the March 2021 budget has been described by Chancellor Rishi Sunak as the “largest two-year corporate tax cut in modern British history,” which the government claims will free up £ 20 billion a year in investment over the life of the policy.

This is one of several different budgeted measures to support the UK’s economic recovery after the pandemic, with the special allowance specifically designed to provide financial incentives for businesses to invest in “productivity-enhancing” equipment they need Help business grow.

The policy, which runs from April 2021 to March 2023, will achieve this by allowing companies to deduct 130% of the cost of qualified equipment and machinery investments from their taxable profits and to take a 50% tax exemption for the first year qualified special assets.

According to the government, this means qualified companies can cut their tax burdens by up to 25p for every £ invested, leaving them with more money to invest in their own growth plans.

However, since the directive was announced, concerns have been expressed that it could be used by multinational tech companies that conduct their sales in the UK through overseas subsidiaries in an attempt to minimize taxes paid in that country.

Speaking to Computer Weekly, Murray said that this was exactly the kind of behavior that was designed to curb the denied change. “It is unacceptable that multinational tech giants have been outsourcing their profits for many years while other companies are paying their fair share here in the UK,” he said.

“It cannot be right for the government to give the same large multinationals another tax write-off, and so we have tried to prevent public money from being spent on a ‘super deduction’ for the largest tech companies.

“In general, the government should take clear steps to curb tax avoidance by large multinationals and level the playing field to prevent British companies from being undercut.”

Online retail giant Amazon was featured frequently in these discussions as an example of a company whose business falls into the category outlined by Murray. For example, sales in the UK are handled through a subsidiary in the renowned tax haven of Luxembourg, while investments in equipment and machinery are made through Amazon UK Services, which provides warehouse and delivery services for its operations in the UK.

George Turner, director of investigative think tank TaxWatch, said the super-deduction could prove hugely beneficial to Amazon’s UK tax affairs if the company benefited from it.

“Amazon has a lot of infrastructure on its delivery network and it’s growing fast, and during the pandemic they benefited tremendously from the restrictions put in place to fight a pandemic,” Turner told Computer Weekly.

“They pay very little tax in the UK anyway, although they do pay a little tax, but their tax bill is completely wiped out by the super deduction.”

According to figures from the TaxWatch research team, Amazon UK Services had a pre-tax profit of £ 102million and a corporate tax liability of £ 6.3million in 2019, while the company’s own accounts show it spent £ 66.8million on machinery and equipment, 80 , £ 4 million for office equipment and £ 15.3 million for computer equipment in the same year.

“With an output of 130% [as per the terms of the super-deduction], it would completely wipe out the company’s taxable profits before deducting employee wage deductions, ”TaxWatch said in its Amazon tax cut report released after budget.

Excited in the chamber

The TaxWatch report has since been regularly quoted by Labor MPs during the House of Commons debates on the finance bill for the past few months, as it reflects Turner’s views that companies like Amazon will benefit the most from the super-deduction policy.

Margaret Hodge has spoken repeatedly in the House of Commons about her concerns about the super-deduction, while tending amendments to ban multinationals with a history of corporate tax avoidance from accessing the super-deduction. This amendment was not put to the vote.

“These companies refuse to contribute to the common pot, but they will – from us from the same pot – be given an enormously generous tax break.” [through the super-deduction]”Said Hodge during the pre-vote debate on May 24th.

“These companies need the public services that taxes buy, from improved connectivity to transportation infrastructure, from training their workforce to investing in the NHS to keep their workers healthy. However, they persist in deliberately not paying their fair share of corporate income tax.

“These companies can undermine and destroy our main roads and joint ventures. They are taking advantage of the price advantage they gain by avoiding the corporate tax they should actually pay, but the government is in the process of providing them with the greatest gold mine for modern big business. “

Computer Weekly reached out to Hodge, leader of the Parliamentary Group Anti-Corruption and Responsible Taxation (APPG), to hear her reaction to Monday’s votes, and reiterated the concern shown in previous debates on the issue.

“Huge companies that use artificial corporate structures to move their profits overseas and avoid UK taxes should not have access to generous tax breaks,” she said. “That’s why I’ve advocated that the largest multinationals – especially big tech companies like Amazon and Google – be denied access to the government’s overly generous super-capital allowances.

“The government should spend more time helping UK SMEs and our popular high street brands, rather than giving money to huge multinational corporations.”

During a finance law debate in the House of Commons on April 19, 2021, Hodge voiced her concerns about the politicians, particularly about how little time companies can spend without “overdone capital investment plans.”

“The tax break will only last two years, so it is unlikely to fund the aerospace industry or any real new capital investment that will take time to plan and implement,” she said.

“It’s mainly used to cut taxes for companies that have invested anyway, and those who will benefit the most are those who suggested the most during the pandemic. They are the companies with operational investment plans that benefit from the increased demand over the past hot year.

As previously reported by Computer Weekly, Amazon has seen both profits and sales soar over the course of the pandemic, as stay-at-home instructions have increased the demand for online orders and deliveries around the world.

This has resulted in the company launching a series of hiring attempts in the various countries it operates in, including the UK, and investing in building the underlying infrastructure of its delivery and logistics network to meet that demand.

During Amazon’s latest financial results, company CFO Brian Olsavsky confirmed that these investments will continue for the foreseeable future.

Computer Weekly contacted Amazon UK Services for comment on this story and received the following statement in response from a spokesperson: “We are proud to be investing heavily and creating good jobs across the UK. We have invested more than £ 23 billion in the UK since 2010, creating an estimated gross domestic product of £ 45 billion.

“The UK has now become one of Amazon’s largest global talent centers, and earlier this month we announced that we would create 10,000 new jobs in the country by the end of 2021, bringing our total workforce to over 55,000. These ongoing investments contributed to a total tax contribution of £ 1.1 billion in 2019 – £ 293 million in direct taxes and £ 854 million in indirect taxes. “

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