Comment: Imagine if John Lewis found a way to wriggle out of paying tax

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John Lewis came out swinging this week, claiming that the Government must address the “Amazon tax issue” or risk driving UK-based retailers out of business.

Andy Street, the department store group’s managing director, said that Amazon would “out-invest” and “out-trade” UK companies unless the Government takes action to force the online retailer to pay a fair rate of tax.

Andy Street clearly has a point; there will obviously be a lot less money to invest if one company is giving away approximately 27% of its profits in tax and others aren’t, and so it seems fair to demand a more level playing field in this regard.

The problem is that shops like John Lewis are being hamstrung by a legal structure that dates back hundreds of years, whereas Amazon has been able to secure a much more ‘creative’ tax structure since coming to the UK in 1998.

The first thing to point out, even though it may sound obvious, is the fact that this dichotomy is extremely unfair. Companies such as Amazon are gaining a massive competitive advantage by domiciling their corporations in tax-friendly jurisdictions, while at the same time enjoying all the benefits of competing against the UK’s high street retailers.

This unfair advantage has the potential to destroy scores of retailers who are already under intense pressure from weak consumer demand, increased commodity prices, inflation, and sky-high business rates.

As a result, two possible outcomes are being kicked around. First, more and more high street retailers will simply continue to go out of business, especially if they try to compete on price.

Second, the Government could decide that companies such as Amazon and Google aren’t allowed to trade in the UK unless they are tax-domiciled in the UK. Neither of these scenarios is very appetising.

In addition to annoying millions of customers, blocking companies such as Amazon from trading in the UK would end up with the Government robbing Peter to pay Paul.

After all, corporation tax and VAT are not the only taxes that online retailers have to pay: they also pay PAYE and National Insurance contributions for all UK employees as well as the salaries and benefits that keep these people spending – and paying tax.

Plus, don’t forget all the UK-registered packing, warehousing and delivery companies working for the likes of Amazon – all of which are presumably paying tax as well. As with most things, it’s not a black and white issue.

What’s interesting, however, is that despite the fact that Amazon and co are paying a relatively small amount of tax – and benefitting from the huge advantages that these savings afford them – retailers such as John Lewis and Debenhams continue to make money hand over fist.

Can you imagine if John Lewis could get away with paying just 2.5% of its profits in tax? The returns for its employee shareholders would be incredible.

Unfortunately for them, that’s unlikely to happen any time soon. What we need instead is exactly what Andy Street is calling for: a solution that levels the playing field, so that any company making an income in a particular country is taxed in that country, rather than diverting its profits to, let’s say, Luxembourg.

When you put it that way, it doesn’t seem like too much to ask, does it?