I want to thank every Amazon employee and every Amazon customer because you guys paid progress. You guys paid problems. This is Megacorp, an investigative podcast exposing some of the world's most unethical corporations. This series is about Amazon. I'm Jake Hanrahan, journalists and documentary filmmaker. Mega Corp is produced by H eleven for cool Zone Media. In this episode, we're going to be stepping out of the warehouse and
taking a look at Amazon's financial situation. So as we already know, they're making an unbelievable amount of money, specifically since COVID hit. So let's start by taking a look at their corporation to x in Europe. Last year, Amazon made forty four billion euros in sales income in Europe. That's thirty eight billion pounds and fifty billion dollars. I guess how much corporation tax they paid? Fuckal corporate tax is spased not on revenue but on profit. Amazon was
able to claim that they didn't make any profit. Quite the contrary, they actually had some losses. It's unclear at this point where those profits are generated, where those profits are registered. At the moment, it's quite opack and it's quite complicated. Amazon, which has been in Luxembourg since two thousand three, has a very nice arrangement with Luxembourg. At the time when it was under former Commission President johnkla Junker, they were able to pass some sweet deal. This deal
remains unclear in many aspects. Luxembourg is known for being a country that offers quite good tack incentives, quite good financial incentives for companies like Amazon. If you're not from the UK or Europe, where you're just not familiar, you might not know what corporation tax is. So let me just explain it briefly. The best description I've seen so far is from the WHICH website. That's w H I c H not which like sorcery WHICH, WHICH is a
nonprofit consumer protection organization here in the UK. They do some great work. So here's what they say about corporation tax. Quote. Corporation tax is paid by businesses in the UK and is calculated on their annual profits in a similar way to income tax for individuals. The corporation tax rate has been for all limited companies since April twenties sixteen. Prior to this, the rate varied depending on the company's profits. Unlike in the visuals, companies don't receive any kind of
tax free allowance and therefore all profits are taxable. However, there are a number of expenses and deductions that can be claimed to reduce your bill end quote. Now that last sentence is where companies with a lot of money can really go to town on how little tax they pay. So to put this Amazon Corporation tax situation into perspective and to really emphasize how infuriating it is, I thought, why not get a little personal. Basically, I'm going to use myself as an example for a minute. So I
run a small media business. It consists of several different projects under the umbrella of my limited company that is popular front this series Megacorp, another series I've done que Clearance, various different projects in video documentary as well. It's all above board. Everything is registered here in the UK. I don't have any full time staff as I can't afford it, so anyone that works for me on any project does
so on a freelance basis. Also, let me just say this, due to Britain's outrageous house prices and admittedly my bad credit score because when I was a youth, I was an absolute idiot. I don't have enough money to be able to buy my own house right now. I've been renting since I moved out when I was fifteen years old,
and I'm now thirty one. Now you might think, what has that got to do with anything, Well, it's just a little bit more as salt in the wound when you hear that hour was the Bezos ball in a minute now? Anyway, don't get me wrong, I am not in a bad situation at all at all. But bearing all this in mind, you can imagine how annoying it is knowing that I paid more corporation tax in than Amazon did, a company with one point three million staff and a net profit last year of three hundred and
eighties six billion dollars. Or in regards to the house, Bezos brought another house last year and it cost him one hundred and seventy five million dollars. Now, you might be listening to this bit thinking, Jake, you sound kind of bitter here. Well, yeah, I am. Let me be honest, I'm not against people making money, and I don't think all rich people should be cast off into the sea or whatever. It is. A lot of the online radicals believe.
But if you're making insane profits off the back of a workforce that we now know being treated awfully, I think the absolute very least you can do is payback into the country by accepting that you must pay the correct tax. Now, don't get me wrong, I am definitely not a big fan of any state, and I am certainly not a fan of my government here in the UK. But this is the way things are, Honestly, Sadly, they're
just not changing. If you're a mega rich corporation making money under these conditions, you should have to pay the proper tax under these conditions. Why Well, because if you, or me, or your average man and woman on the street earning normal money don't pay their taxes, we go to prison. Your average man or woman is just not rich enough to higher top of the range accountant firms that help you dodge tax. Clearly, Amazon is I say this because what they're doing is actually perfectly legal. Now.
I don't know about you, but for me, that makes it all the more frustrating. Clearly, the system as a whole is morally bankrupt. Europe has become a playground for mega corporations. They're able to do acrobatics with their tax payments because they afford to make it work for them. You might just say, oh, well that's business. Well, yeah, that is business. But at the end of the day, people are getting harmed, people are getting abused, while these
businesses pay us fuck all back into the country. That is, companies like Amazon willingly abused their most important workers were paying as little as possible back into the country where they live, the country where they make money off of. Now, I guess it's all about economics and politics at this stage, but personally that doesn't sit right with me. Unfortunately though, when it comes to numbers, I am an absolute dunce.
So I thought, why not talk to someone that does understand all of this a lot better than I do, an accountant. This is what accountant and writer Adam James Pollock had to say about Amazon. Amazon UK have their own distribution service called amams on UK services and though the pre tax profits increase, the tax bills have been
falling over the past couple of years. So of the thing is Amazon can get around this by paying certain employees and shares as a form of something called equity compensation.
And as an employee, you know if your mid level managerial upwards, you can get paid through shares through like for example, the UK Government's Share and Center Plan, and for employees it's kind of beneficial as well because you can keep the shares in this for five years, you don't pay any income tax or national insurance on them, so it kind of helps you out there, and then if you sell them as well, you don't pay any
capital gains tax. But obviously this helps Amazon as well because they can count as an expense so on their balance sheet they can offset that against their corporation tax. So even though they're paying their employees employees making money, Amazon's making money, nothing's getting done the tax there. So in the UK employees can give up to thirty six hundred pounds worth of free shares per employee per year. So these shares are in Amazon's global corporation, Amazon Inc.
It's not the UK a company. So these are increasing on like a drastic rate over the past couple of years. So again upper managerial level has been helped out so much. Amazon is being helped out so much, and the people that are losing out as usual is the general public. Since in the UK h m r C can collect on it and the lower level workers who can be concerted in this way, so they still have to pay national insurance all that sort of stuff. And Luxembourg has
something to do with this, right from what I was reading. Yes, so tax paid on the UK profits isn't actually publicly available information because UK customers are booked through the UK based branch off a Luxembourg based Amazon company which handled lots of European you know branches, so France, I think
Spain as well. That Luxembourg subsidiary is technically a loss making company because it has process work can carry forward these losses over several years and if you're not booked as making a profit it you can't actually pay tax on it. If you if you're making losses, there's nothing that they can tax there because the taxes paid in profit, not on sales, so you know they're selling loads of stuff as they do, they still can't get taxed on it.
But as well as that, there's something like called the independent entity principle, and through that subsidiaries like say for example Amazon Web Services based in the UK that yeah, it's like kind of a separate company, so they are viewed in legalizes only providing support services to Amazon, rather than actually being a part of the company, there are separate entity so it's not viewed as an Amazon company.
It's viewed as like just any service providing company. So that means that they can apply a principle, you know, it's one sided method to determine appropriate tax or profit taking this subsidiary in isolation from the group, and it applies a benchmark rate based on things such as operating costs. So for Amazon in the industry it's in you've got services such as warehousing and delivery and marketing. They're all
generally very low margin businesses. So when you take these Amazon like subsidiary service providing branches, those smaller ones are also generally low margin businesses, so the profits they declare are very low. And this links back Luxembourg as well, because since the accounts for the Luxembourg you know overall parent and company if you want, are not broken down on a poor country basis because they don't have to
do that legally, so why would they. We actually have no idea how much tax the UK branch will play. It's not possible to work out unless Amazon declares it and they don't have to write Now they don't have to. They're absolutely no need to. And it's the same for all the Amazon companies in Europe that are branches off the Luxembourg one. So chances are it's just treated as the same as the web service as example, where it's just seen as supplying services, managing set else in that case,
and then declared very little profit because of that. Wow. So this is a massive loophole essentially, right, I mean legal, but a loophole. It sounds like, yeah, it's legal, completely legal, but that kind of makes it worse because it's less converted out in the open, so they can't know that there's nothing you can do about it, and they're just laughing at you in a way. After hearing that, it
will probably be no surprised. But it's not just Europe where Amazon has been swerving their taxes for several years. Amazon paid no federal income tax in America in eighteen. Specifically, Amazon paid zero dollars US federal income tax on their eleven billion dollar profits that year. In fact, not only did they pay no federal income tax on their profits, they actually received a one hundred and twenty nine million dollar tax rebate from the federal government Effectively, that's a
tax rate of minus one percent. One of the main reasons Amazon is able to do this, though, is due to the Tax Cuts and Jobs Act, a federal tax bill enacted by US Congress in twenty seventeen. This bill lowered these statutory corporate tax rates from thirty five percent
to twenty one percent. This made the rate lower whilst also leaving open tax loopholes, which, according to the Institute on Taxation and Economic Policy senior fellow Matthew Gardner, allow profitable companies to routinely avoid paying federal and state income taxes on almost half of their profits. In a report from February one, Gardner wrote, a great explanation of all this. Now this is quite a long quote, but I think it's worth it. He really sums it up here, Gardner said, quote.
The mechanisms the company is using to drop its effective tax rate mostly unchanged. The company saved one point eight billion dollars using tax breaks for stock options, and it saved six hundred thirty nine million dollars using various tax credits over the eighteen to twenty period. Amazon also enjoyed the appreciation breaks, although they had no net effect on the company's tax bill in Appreciation breaks allow a company to deduct the costs of investments in equipment much more
quickly than the equipment wears out. Proponents in Congress claim this encourages investments and helps the economy overall, but more likely it rewards companies making investments they would have made anyway. The effects of depreciation breaks are complex. Part of the effect is to move tax payments further into the future, even though the net effect in the long run reduces
the company's tax liability. This makes it important to look at a company like Amazon over several years, and from this perspective, it's clear that the nation's tax code barely lays a glove on Amazon. Amazon's tax avoidance is consistent. Over the past three years, Amazon paid an effective federal income tax rate of just four point three percent on
US income. Over the past ten years, Amazon's effective federal tax rate on fifty seven billion dollars of US pre tax income was just four point seven percent, especially remarkable given that the legal rate was thirty five for most
of this period. For any other company, one point eight billion of current federal income taxes would be interpreted as a signed the company's tax accountants had taken the year off, but in Amazon's case, the one point eight billion dollars the company paid is over sallowed by the two point three billion it did not pay last year. These unpaid taxes are especially troubling because Amazon's pandemic experience is utterly
different from the existential threats facing entire industries. Far more typical of the economy is companies reporting created sales and zero profits. In this setting, it's vital that our tax system in America should perform as advertised, and when Amazon shelters more than half its profits from tax, our tax system is clearly in need of reform end quote. So basically, a complicated combination of various tax credits, deductions, and investment in equipment has allowed Amazon to pay it little or
no taxes for a long time, completely legally. In March, he won. This got so much attention that US President Joe Biden addressed Amazon by name when saying he planned to stop big corporations using all of these tax loopholes. He said, quote a fireman, a teacher paying twenty two percent tax, Amazon and ninety other major corporations paying zero in federal taxes. I'm going to put an end to that end quote. Of course, he's yet to put an end to that. However, it seems that Amazon has been
on his mind for a while. Here's what he had to say about Amazon's tax situation in before he was even elected president. I think if Amazon should start paying their taxes. Okay, I don't think any company. I don't give a damn how big they are. The Laura Almady should absolutely be in a position where they pay no tax to make billions and billions and billions of dollars Number one. Now, to play devil's advocate here or whatever you'd call it, is this the fault of Amazon or
the state? Who's to blame here? Ethically, Amazon has chosen the path of hard core tax avoidance, but that is not the same as tax fraught. It could be argued that Amazon cares very little about ethics based on the way they treat their warehouse workers, So why should they care about paying their taxes properly when legally they've done nothing wrong. Effectively, in the eyes of the law, they sort of have paid it properly. The problem, it could
be said, is the system itself. In response to Joe Biden, Amazon's senior Vice President for Policy and Press, j Kenney tweeted the following quote. If the R and D tax credit is a loophole, it's certainly won. Congress strongly intended. The R and D tax credit has existed since one was extended fifteen times with bipartisan support, and was made permanent in twenty fifteen in a law signed by President Obama.
End quote. Now J. Carney would know. He was Obama's White House Press secretary and ironically enough, Biden's communications director when he was the Vice president under Obama. Now, I hate to say it, but J. Carney has a point here. There is no way this tax loophole was left in by accident. Many politicians in the US, both Republican and Democrat, talked to about changing tax loopholes that they actively benefit from. If the system is corrupted, why shouldn't a company like
Amazon take advantage of it? Let's hear what else boy And had to say in that interview. And I came from the corporate capital of the world, Delaware, and I'm not anti corporate, but here's the deal with idea that they made a several trillion dollars and all the studies show that fifty percent went to buy back their stock, thirty seven percent to make sure their stockholders got rewardingly, then nine percent for research, development, racist employment, et cetera.
Come on, man, that's not the capitalist system, isn't it. It seems like Amazon are just playing the system as the politicians set it up. But whatever, they can do what they want, but they're not Robin Hood out here or anything like that. They managed to make an absolute fortune by avoiding tax, especially throughout the pandemic, and they chose to reinvest almost none of it into the warehouse workers who are breaking their next to make sure the
company stays running on time. They're swerving tax, treating their workers badly, along with a ton of other scandals that will go into later in the series. At the very least, I think they could stop acting like an ethical company in their press releases and when they're talking to the public, because clearly that is just not true. Now here's something else. This will again be no surprise to you at this point. But Bezos himself is of course no stranger to tax avoidance.
According to a twenty twenty one Pro Publica article, Jeff bezos Is personal wealth grew by a massive ninety nine billion dollars from the years twenty fourteen to eighteen. However, he reported a growth of a measly four point two billion dollars. He paid nine hundred and seventy three million dollars tax on that, which is a hell of a lot of money, sure, but in context to what he really made, he paid a tax rate of less than
one percent zero point nine eight percent. To be exact, the richest man in the world paid less than one percent tax on ninety nine billion dollars. Now, look at all this, it reminds me of the aura borous, the snake that eats its own tail. Amazon wouldn't be able to legally avoid all this tax the way they do if the rich and powerful politicians of this world hadn't set the game up to be rigged in the first place. Now I'm not really even trying to get all political here.
I think it's clear it's a fact that if you have enough money, you can avoid certain laws so effectively that you can do it legally. That's exactly what Amazon has been doing with their taxes. We're taking a break over Christmas, so the next episode of Megacorp will be with you at the stat of January two. Tune in then to hear about yet another Amazon scandal as we dive into the many cases of Amazon spying on their own customers and helping international intelligence agencies to do the same.
It's all a out to get even darker. Mega Corp. Is made by my production company H eleven for Cool Zone Media. It's written, researched, and produced by myself, Jake Hanrahan. It was also produced by Sophie Lichtman. Music is by Some Black, graphics by Adam Doyle and sound engineering by Splicing Block. If you want to get in touch, follow me on social media at Jake Underscore Hanrahan. That's h A N A A h A n