UK court ruling may prompt more scrutiny of Amazon tax plans

(Reuters) – Amazon’s tax affairs could come under more scrutiny in Britain, tax experts said, after a judge questioned whether it really was organized in the tax efficient way it said it was.

The ruling comes as big technology groups, including Amazon, face increasing scrutiny in Britain over their tax practices.

A UK judge ruled earlier this month that Amazon had infringed the trademark of soap maker Lush by posting advertisements on Google mentioning “Lush soap” and by offering customers who searched for “Lush soap” on its own website a list of options.

Since Lush products were not available on Amazon’s UK website – on the manufacturer’s insistence – the judge ruled customers could be confused.

Amazon did not respond to requests for comment. Lush said it welcomed the ruling.

In addition to denying infringement, Amazon said only its main European operating subsidiary, Luxembourg-based Amazon EU Sarl., and not the group’s UK subsidiary, Amazon.co.uk Ltd, should be a defendant.

Amazon argued Amazon.co.uk Ltd had no case to answer because Amazon EU Sarl ran the UK business from Luxembourg, and that the British subsidiary simply provided services such as warehousing to the Amazon group.

This structure is also the basis of Amazon’s claim that its retail business doesn’t have a tax residence in Britain – and that therefore, all revenues and profits should be declared in low-tax Luxembourg.

But the judge said Amazon’s depiction of the role of the UK unit was “wholly unreal and divorced from the commercial reality of the situation”.

David Quentin, a lawyer with Stone King who has advised campaign group the Tax Justice Network, said the ‘tortfeasance’ rules that applied in the Lush case were different to those that govern tax cases.

Hence, the ruling previously reported in Private Eye magazine did not set a precedent that would overturn Amazon’s tax arrangements, he said.

However, Ray McCann, a former tax inspector who works with law firm Pinsent Masons, said the ruling could encourage the tax authority, Her Majesty’s Revenue and Customs, to take a closer look at Amazon’s structure.

“Since who does what is key to an analysis of a company’s tax status, and Amazon’s “who was responsible for what” arguments were not accepted by the court, it could mean that HMRC might look more critically at what Amazon has been saying,” he said.

HMRC declined comment.

Credit: Reuters