The CD may not carry anything of the nostalgic glamour associated with vinyl records, but for most music lovers it has been the go-to medium for recorded music for the past twenty years or so. Even though illegal digital downloads and legal digital companies like Spotify have taken a large chunk of the CD market, CDs can still be bought on the high street and more often from online companies, of which Amazon is the largest. Listeners can buy digital recordings of their favourite musicians whether popular, classical, roots, blues, indie, jazz – more or less whatever they want. They can even buy Gary Barlow recordings, with or without Take That.
Gary Barlow OBE is the hugely popular British singer/composer, model for M&S men’s clothing, charity worker, X-Factor judge, organiser of HRH Queen Elizabeth’s Diamond Jubilee party and much, much more. He is also an active supporter of the Tory party.
So what do Gary Barlow and Amazon have in common? Dodgy tax affairs, that’s what.
Fancy a new CD? Great! What does Amazon charge? Blimey, that’s cheap! What about a new swimsuit or an iron or a hockey stick or a cat basket or a book or Play Station 4? What about …. well you get the picture! Often Amazon DOES trade at a cheap price but if you look beyond the price you’ll see the real cost and it is very high!
In order to get a sense of the real cost, simply consider this:
Amazon’s sales income in the UK alone in 2013/2014 was £4.3bn. Amazon paid £42 million in corporation tax. This amounted to less than 0.1% of income.
Compare Amazon’s tax situation with a typical British employee, perhaps an Amazon employee.
A married person with a taxable income of £27,000 pays £5,685 in tax (incl. National insurances). Expressed as a %age of income this amounts to 21%.
How could it happen that a typical employee pays more than 210 times the amount paid by Amazon? Well, companies do not pay tax on income but on profits. Amazon’s declared profits in the UK for 2013/2014 amounted to just £17 million on which it paid corporation tax set at 24%. The tax bill was just £4.2 million.
Looking at these figures might lead you to think that any well-run company earning £4.3 billion ought to make more than £17 million profit. Amazon is, of course, a well-run company; so what is happening?
Although Amazon’s sales were £4.3bn, the company declared a turnover of £449m for 2013 and it was on this sum that profit was calculated and tax levied. This sum was NOT raised from sales but in payments for its warehousing, distribution and administrative work, such as negotiating purchasing deals with book publishers
So, the obvious question is this. Why doesn’t Amazon’s UK turnover include sales? Because the company has decided it does not want to and, legally, it does not need to. Amazon is able to pay low tax because when British shoppers buy from the UK websites, the payment is taken by an Amazon subsidiary based in the low tax jurisdiction of Luxembourg. In effect, the sales are made in Luxembourg.
Margaret Hodge, chair of Parliament’s public accounts committee, said shoppers should find alternatives to Amazon; Waterstones, perhaps. She went on:
“It is an outrage and Amazon should pay their fair share of tax,” said Hodge. “They are making money out of not paying taxes. I no longer use Amazon. We should shop elsewhere. What we demonstrated with Starbucks is the power of the consumer voice”
Naturally, this is more effective when a large number of customers look elsewhere. The standard Amazon reply to individuals who withdraw their business is as follows:
“Thank you for contacting Amazon.co.uk.
“Amazon serves millions of customers throughout Europe and we pay all applicable taxes in all the jurisdictions within which we operate.
“We hope to see you again soon.”
This is the email equivalent of flashing a giant 2-finger sign in the direction of its customers and taxpayers.
In 2012 it was alleged that Gary Barlow and two other members of Take That, but not Robbie Williams, had invested at least £26 million in an investment scheme run by Icebreaker Management.
This is how the company describes its business:
“Since 2004, Icebreaker has been bringing together investors, entrepreneurs and creative talent. There is a particular emphasis on commercial projects in the creative and technology industries. Income from these projects is shared between the relevant Icebreaker LLP and the individuals and companies involved.” (See: http://www.icebreakerfund.co.uk/home.asp)
Judge Colin Bishopp has now ruled that 51 partnerships set up by the company were set out to secure tax relief for members, and HM Revenue and Customs. is now expected to demand repayment. Gary Barlow has not yet decided whether to appeal the judgement.
How do the tax arrangements work?
1. A person or company enters into a partnership with finance companies of which Icebreaker Management is allegedly an example. Such a partnership works by allowing investors to make a contribution of their own money, which can be boosted by an offshore bank loan.
2. The money is then invested buying music rights in artists, with profits paid back into the partnership.
3. The investor can then gain tax relief on the full amount invested, regardless of their personal contribution. The scheme also allows investors to claim tax relief on first year losses, which can be offset against other income.
4. This means an investment of £200,000 would result in an earning of £1m.
Gary Barlow’s lawyers insist that he and the two other Take That members believed the investments were legitimate enterprises and that the named paid “significant tax”.
He was awarded his O.B.E. not only for services to music but for his charitable works. Not surprisingly, given the reports of aggressive tax avoidance, there has been much discussion regarding whether or he should hand it back. David Cameron, whilst deploring Barlow’s alleged actions, argues that Barlow should keep the OBE because has “done a huge amount for the country. He’s raised money for charity, he has done very well for Children in Need. The OBE was in respect of that work and what he has done.”
Whilst, not decrying Barlow’s charitable instincts it is reasonable to point out that if he didn’t allegedly dodge tax then he:
1. would not have as much money to spend on charity. Some cynics might argue that giving to charity is a good way for Gary Barlow to refresh his brand;
2. the tax payer would have been able to use the tax collected to support the work of the government.
Writing on The Guardian website, Zoe Williams expressed the relationship between paying tax and giving to charity in strong terms.
“In fact, paying tax and giving to charity are connected, and if you avoid the former, you leave a gaping hole in the social fabric that must be darned by the latter. It’s like overlooking all the landmines a person planted, then giving them an MBE for money raised in the service of prosthetic limbs. Of course, Cameron may feel uncomfortable making that argument – perhaps he’d end up unpopular at cocktail parties ….” (See: http://www.theguardian.com/politics/shortcuts/2014/may/12/gary-barlow-obe-david-cameron-tax-avoidance)
Ed Miliband has spoken frequently of the moral deficit involved in companies and individuals seeking to avoid paying fair taxes. Initially criticised for attacking predatory capitalism, Miliband has been proven right, time after time and most recently over Pfizer’s hostile bid for AstraZenecka.
Predatory capitalism is not the sole preserve of huge companies like Amazon. Individuals, such as Gary Barlow, are just as likely to engage in it. He is, after all, using the structure of international finance capital and, in particular, off-shore arrangements to avoid paying tax. Mr Barlow might not look like a predatory capitalist when crooning to a pop concert audience but Judge Bishopp knows one when he sees one.
Perhaps you cannot legislate for people who are determined not to ‘play fair’ in their financial lives. You can, however, create an environment in which paying fair taxes is seen as the norm for companies and individuals. For that, Britain will need a Labour government.
Britain Can Be Better Than This
PS The International Trade Union Confederation announced the news on Thursday, that Amazon’s CEO has been voted ‘th world’s worst boss’, saying Amazon’s business model “is unsustainable and is based on treating its workforce – permanent, part-time and temporary – as inhuman robots.” Just interesting.
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