Navigating international tax regimes is a tricky business at the best of times but any company involved in web-based trade overseas could well find their corporate tax affairs getting considerably more complicated. This following a major decision by global behemoth, Amazon, to change its policy with regard to international tax by recognising every sale as taking place in the country where the sale originates i.e. where the customer is. International tax experts at leading accountants, Baker Tilly, are warning all their clients who conduct any kind of cross-border internet sales activity that there could be ripple effect, upsetting existing international tax arrangements across the globe.
Amazon’s decision has been taken largely to fend off pressure from countries all over the world to stop multinational giants from shifting their profits to individual tax havens where there is little or no tax to pay. This practice has led to so much public uproar at a time of widespread fiscal austerity that companies such as Starbucks have even been the subject of damaging customer boycotts.
The main focus of governmental response has been the international tax treatment of those companies conducting business over the internet where tax avoidance is relatively easy. The OECD countries have already begun examining the international tax system which in turn dictates their individual national tax laws and their main target is Base Erosion Profit Shifting (BEPS).
The UK has been one of the first to react to the widespread use of legal but unpopular tax avoidance activity by introducing the so-called Google tax, officially known as the diverted profits tax. As from April 2015, this will tax profits deemed to have been earned in the UK but obviously diverted overseas at a rate of 25% compared with the normal 20% corporation tax rate.
Amazon clearly sees this pre-emptive move by the UK as the thin end of the wedge and is naturally keen to remain both officially compliant and generally popular within its host markets. Specialists in international tax warn, however, that this sets a dangerous precedent. They argue that this flagship company is effectively conceding that a sale via the internet should be taxed according to where the buyer makes the purchase as opposed to any other spurious location such as where the servers are housed or where the website is designed or maintained.
This is sure to be seized upon, say the international tax experts, by tax authorities across the globe who will view this as the benchmark for establishing where profits from internet trade are recognised and could well use it as powerful ammunition in any related tax cases that reach court.
Those responsible for advising clients on international tax and other regulatory matters fear that there is now a risk of companies both large and small facing unexpected tax demands from any countries where they make sales via the internet. At present they may be including such sales in their total turnover and automatically assuming that it is UK corporate tax that is payable on any profits arising therefrom. The precedent established by the Amazon decision could therefore throw all such assumptions into pandemonium.
Make no mistake, international tax professionals are very concerned that if your business is engaged in trading over the web and has customers in overseas tax jurisdictions, then you could well be in for some nasty surprises. If you are in any way worried by how you should react to this new international tax environment and would appreciate some specialist advice on the subject, the international tax team at Baker Tilly will be only too pleased to assist.