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Have we ever seen a company like Amazon?

  1. amazon
    ChrisGoodfellow

    ChrisGoodfellow UKBF Regular Full Member - Verified Business

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    By many measures Amazon is an unusual company. A breathtaking example of building a business. But is it the kind of company we want?

    Half of the 10 largest public companies launched in the last three decades. One is a Chinese investment conglomerate. The rest are tech-enabled upstarts that have become household names - Amazon, Alphabet, Facebook and Alibaba.

    Amazon’s top of the class from the 90s and early noughties. At 24-years-old it has a staggering market capitalisation now north of $1 trillion.

    Its growth - and the company’s resultant power - raise serious questions. It’s aggressively targeted tax minimisation and leveraged government subsidies. From government infrastructure investments to its US workers’ use of public welfare. Not to mention its laughably small UK tax bill.

    Should we be re-thinking the way we tax these companies or trying to level the playing fields in some other way?

    Spending billions on acquisitions

    Amazon invested $795 million in 2015, $116 million in 2016 and $14 billion in 2017. The most jaw-dropping among these was Whole Foods, which it acquired for $13.7 billion in August last year.

    The so-called ‘Amazon effect’ quickly came into force. Prices were immediately lowered for the supermarket’s best-selling staples. New price decreases followed in November. It gave free delivery and cashback to Prime members in March 2018. Products became available on Echo and Amazon packages can be collected in stores.

    The integration opportunities offered by Amazon's network leave investors quaking in their boots. Amazon’s acquisition of online pharmacy PillPack in June wiped $11 billion off its competitors' market values in a single day.

    Acquisitions dramatically increase Amazon's market-shaping power.

    Growing beyond a platform business

    Large online marketplaces are often worth more than their asset-owning counterparts. Amazon’s unusual among these businesses because it’s set out to usurp the companies it lists.

    Amazon entered the private label business in 2009 with AmazonBasics. It's now reported to sell more than 100 products under a variety of brands. Analysts SunTrust Robinson Humphrey predicts this will grow to $25 billion in sales per year by 2022.

    This apes the approach taken by big retailers. But, Amazon’s domination of online sales - 49% in the US - and its ability to bundle services makes it a new kind of threat.

    First it undercuts prices, then it replaces third-party products with its own.

    A taxpayer-subsidised workforce

    Amazon employs 560,000 people, five times as many as Apple and Alphabet. The relentless pressure on margins leads to low pay.

    Fulfilment centres can dominate local workforces. But the jobs aren't always what they're cracked up to be. Policy Matters Ohio found one-in-10 Ohioans employed by Amazon rely on food stamps.

    “Why is this giant, successful company offering such limited pay and hours of work that many of its workers need help buying food?” asked research director Zach Schiller.

    To make matters worse, Ohio's given Amazon $123 million in tax breaks and $2.9 million in cash grants since 2014. Ohio's a petri dish for what’s happening across the US - Amazon’s estimated to have received $1.2 billion in subsidies.

    Amazon’s disruption of commerce doesn’t just mean fewer jobs, it means worse jobs; we should be approach its rapid UK expansion with apprehension.

    That tiny UK tax bill

    Amazon UK Services made an operating profit of £79.8 million in 2017 - a three-fold increase on the previous year - on a turnover of £2.0 billion. Yet the warehouse and delivery company paid just £1.7m in tax.

    It paid employees shares, which were offset against corporation tax (the Financial Times estimated this reduced the tax bill by £17.5 million).

    Amazon Web Services UK's turnover jumped by 85% to £98.8 million, while profits increased from £2.7 million to £5 million in 2017. Yet tax fell from £404,000 to £155,000 over the same period.

    However, neither of these company’s include retail sales, which are reported through Amazon EU Sarl in Luxembourg, making it hard to know the true extent of its tax minimisation activity. We at least know that its US 10-K puts UK revenue at £11 billion in 2017.

    That should make HMRC’s eyes water.

    Should we support this company?

    Amazon's evolved into an apex predator: acquisitions allow it to capture new markets; private label products replaces retailers it has symbiotic relationships with; and the government provides subsidies and permits outrageously low tax payments.

    These regulatory benefits are simply not available to small businesses, which are suffering under the strain of business rates.

    While Amazon’s heralded as a startling entrepreneurial success story - and Bezos truly has few peers - it shows us the prototypical monopoly of the future. Platform-based businesses that acquire or displace, depress wages and grift every penny they can from the state.

    The question we have to ask is: do we want to support this kind of company?

    There’s already talk of a possible antitrust case akin to Microsoft’s anti-competitive practices, so that’s one possibility.

    The other is to put pressure on the UK government.

    Chancellor Philip Hammond recently hinted that the government may look at changing taxation to level the playing field between online and brick-and-mortar retailers. Booksellers, the first industry to face Amazon, have been campaigning for such an Amazon Tax since 2012.

    The government needs to stop being awestruck by Amazon’s big numbers. Its activities in the US show the impact it can have – we need to act before the company gets any bigger.

    This article was originally published on AccountingWEB. You can find Chris heading up small business competition The Pitch or on Twitter @CPGoodfellow.

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  2. Mr D

    Mr D UKBF Legend Free Member

    10,119 1,063
    Changing taxation to level the playing field?
    In other words hit those selling online with more taxes.

    With government be careful what you wish for. Sometimes the government will do it.
     
    Posted: Sep 7, 2018 By: Mr D Member since: Feb 12, 2017
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    Scosel likes this.
  3. The Byre

    The Byre UKBF Ace Free Member

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    There is a convergence of interests for big business and governments everywhere, esp. in the UK and the US. We have a inheritance-billionaire in the White House and a former banker in Downing Street, who is married to a powerful and very rich investment banker.

    We live in the the World's largest tax haven and money-laundering centre, with billions being stolen from Russia and China and elsewhere, ending up coursing through UK banks and their off-shoots in Jersey, Guernsey and the Bahamas. Companies like PWC and KPMG carefully structure and aid the likes of Amazon so that they do not have to pay taxes or fair wages.

    Or as George Carlin said "It's a big party and you're not invited!"
     
    Posted: Sep 7, 2018 By: The Byre Member since: Aug 13, 2013
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  4. Michael Loveridge

    Michael Loveridge UKBF Newcomer Free Member

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    The solution is for the government to create a special category of international companies that are specifically identified as abusing their power in an anti-trust manner so as to avoid paying UK corporation tax. They could perhaps be designated as "Tax Withholding Anti Trust Structures".

    Once so designated all sales that they made in the UK would be subject to a specific sales tax - say 10% . On their £2bn annual sales in the UK a tax of that amount would raise £200m.

    Such a tax would also help small bricks and mortar retailers who do have to pay UK tax in creating a rather more level playing field.
     
    Posted: Sep 7, 2018 By: Michael Loveridge Member since: Aug 2, 2013
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  5. MJMc

    MJMc UKBF Newcomer Free Member

    14 2
    I was a heavy Amazon user up until 2015, almost 1 multi item purchase a week. They were the go to online retailer. But disliked the way I seen & read how they treated people, both staff and competitors. SO I stopped using them. Made 1 purchase from Amazon last year, only because they were the only retailer that had the item in stock for same week delivery.

    I have found I don't really pay that much more going elsewhere.

    I think the Black Mirror episode Metalhead is a poke at Amazon.
     
    Posted: Sep 7, 2018 By: MJMc Member since: Jul 5, 2018
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  6. Mr D

    Mr D UKBF Legend Free Member

    10,119 1,063
    How much is fair wages for amazon?
    Similar to other logistics operations for basic staff? ie more than minimum wage currently.
     
    Posted: Sep 8, 2018 By: Mr D Member since: Feb 12, 2017
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  7. Mr D

    Mr D UKBF Legend Free Member

    10,119 1,063
    So charging UK customers nothing?
    Amazon doesn't sell in the UK, they sell in Luxemburg. You've probably never purchased from amazon in the UK.

    Now if the government started charging amazon customers an extra 10%, how long before they decide to start charging John Lewis customers an extra 10%? How long before they start charging you an extra 10% for anything you buy online through a UK bank?
     
    Posted: Sep 8, 2018 By: Mr D Member since: Feb 12, 2017
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  8. landalan

    landalan UKBF Newcomer Free Member

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    Amazon is more and more difficult now even for sellers.
     
    Posted: Sep 10, 2018 By: landalan Member since: Jul 27, 2018
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