2% digital services tax gives Amazon competitive advantage over SMEs

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“Bloody fuming”, “Scandalous”, and “So badly designed it’s ended up giving Amazon a competitive advantage” are some of the terms Amazon merchants have said today, referring to the news that whilst these small businesses will be paying the 2% digital services tax on their Amazon sales, Amazon themselves won’t be paying the tax on their own sales.

“The ability of large companies like Amazon to use their size and market power to organise to avoid taxes and to lobby to ensure an overwhelmingly favourable environment risks quietly drowning the many thousands of small businesses that depend on them for survival. It is time that more serious and direct regulation was put in place for these critical pieces of economic infrastructure.”
– Tamebay reader

The digital services tax was introduced on the premise that large internet giants weren’t paying what was perceived to be their fair share of taxes. Many are domiciled overseas and derive considerable value from UK activities but, by offsetting investment losses and moving profits overseas pay relatively little UK tax. It’s a complicated international conundrum.

eBay were the first and currently pretty much the only large internet giant to stand up, accept the 2% digital services tax and state that they would be paying it. No passing it on to their sellers, no questions, just a yes, it’s a tax and we’ll pay it.

Amazon immediately announced that they’d pass the tax on to the small Amazon merchants struggling to make a living by selling on their platform. 2% digital services tax? Not a problem, we’ll just tack it to what you pay with a fee increase. Far from it being a tax on an Internet giant it’s a tax on small businesses who will ultimately have to pass it on to consumers.

“This seems to me to be absolutely outrageous. It’s clear the UK government is not taxing Amazon properly and is allowing it to avoid tax on its own sales through the marketplace. This puts regular retailers at a significant disadvantage. The digital sales tax does not achieve its objective of yielding more revenue from the likes of Amazon, as it is simply passed on to its suppliers in the marketplace, which have to absorb this tax in their margin.”
– Lord Leigh of Hurley

Google like Amazon have no intention of paying the 2% digital services tax but they went one step further than Amazon. Rather than raising fees they decided to add it to your invoice. This means that if you set a budget with an ROI that makes sense to you, you’ll suddenly find the fees you were quoted for their services will be bumped by 2% on the invoice. It won’t show on any reporting or metrics, if you’re not aware of the fees then have fun in a year’s time explaining to your board why you massively overspent on Google as your reports won’t match the invoice the accountants received.

Even worse than passing the 2% digital services tax to merchants, Amazon will now have a 2% competitive advantage when selling products in competition to you. You will have to factor in your Amazon fees which will include the 2% digital services tax but Amazon on their own sales won’t have the 2% to worry about. On any individual product the amount is tiny as it’s 2% of the fees, not 2% of the sale price, but it’s still a competitive advantage.

Amazon are unrepentant saying it’s the governments fault for designing a tax that could simply be passed on to merchants and blaming them for not waiting for an international solution. In the mean time they have no intention of paying and that does beg the question is it any wonder the government are considering an online sales tax which will penalise everyone that sells online but is a tax Amazon will find a little bit harder to avoid paying on their own direct sales?

“Like many others, we have encouraged the government to pursue a global agreement on the taxation of the digital economy at OECD level rather than unilateral taxes, so that rules would be consistent across countries and clearer and fairer for businesses. As we’ve previously indicated, the way that the government has designed the digital services tax will directly impact the businesses that use our services.”
– Amazon