By Nassim Khadem of the ABC
Amazon has paid little tax in Australia since setting up its local online retail business, its financial accounts show, with possibly hundreds of millions of dollars flowing offshore last year.
Photo: 123RF
The company has used a range of tactics and loopholes to legally reduce the income taxes it pays around the world.
The ABC revealed that, in Australia, Amazon's three local entities had combined revenues of more than $1b but a combined tax bill of just over $20m in 2018.
While corporate tax is based on profits, not revenue, governments globally are currently trying to crack down on tech giants shifting income offshore.
The Seattle-based company headed by the world's second richest man, Jeff Bezos, basically treats Australia as a marketing operation across some of its entities.
According to the Bloomberg Billionaires List, Mr Bezos's personal wealth is about $109b. Until earlier this week, he was the world's richest man, but Microsoft's Bill Gates has now taken back the top spot.
The business Mr Bezos founded opts to use a tax structure similar to those adopted by other technology companies - including Google, Facebook, Uber and Airbnb - whereby hundreds of millions of dollars of "revenue" is counted offshore.
This strategy of shifting almost all of its income outside the US to reduce its tax bills has seen the company face intense scrutiny in recent years from regulators in the United States and Europe.
Last year, Amazon, which is now valued at about $US869b, paid zero US federal income tax on record profits of more than $US11b.
A large proportion of Amazon's global profits end up in a Luxembourg subsidiary, which is why Amazon has in recent years drawn the attention of the US Internal Revenue Service (IRS) and the European Commission.
The IRS recently lost its case against Amazon in the US courts, which had related to a $1.5b dispute over the company's tax treatment of transactions with a Luxembourg subsidiary.
The European Commission in 2017, declared Amazon's use of a Luxembourg subsidiary as "illegal" state aid and ordered it to backpay €250m in taxes - a finding the company rejected and has appealed.
Amazon says it operates within the law, others call it a 'farce'
Amazon Australia files limited financial information, as it is not a publicly listed company on the ASX.
It does not state in its 2018 accounts which related entities the 'revenue' comes in from, and may flow back out to, and it did not respond to questions from ABC News asking where these were located.
However, its previous 2016 accounts had shown related-party deals with the once-notorious tax haven, Luxembourg.
Amazon also did not respond to questions about whether the company was facing a review or audit by the Australian Taxation Office (ATO).
"We pay all applicable taxes in Australia and every country where we operate," an Amazon spokesman said.
Principal analyst at the Centre for International Corporate Tax Accountability and Research (CICTAR) Jason Ward said Amazon's tax structure was a "complete farce" and called on Australia's federal government to require greater transparency from companies.
"How is it possible that Amazon's largest Australian entity, in the top 1000 companies by total income in Australia, can earn all of its income from fees charged to related parties?" he asked rhetorically.
He added that those fees enabled Amazon to shift profits into low-tax jurisdictions - perhaps Luxembourg - where they are taxed very little or not at all.
"It's important that companies like Amazon controlled by the world's richest man, aren't allowed to continue to use loopholes in the global system to basically rob our schools, hospitals, and other public services from the funding that they need."
How Amazon structures its online business to pay little tax
Amazon's local operations are structured under three main banners: Amazon Commercial Services, Amazon Web Services and Amazon Corporate Services.
All three businesses are ultimately owned by Amazon.com Inc, a company based in Seattle, Washington, but incorporated in low-tax Delaware.
The bulk of revenue that flows to and from these Amazon companies in Australia is actually sourced from, and paid by, related parties offshore.
While the e-commerce giant has long sold Kindle books and other intangibles through its Australian website, Amazon's consumer-facing online business officially opened in Australia in late 2017, allowing physical goods purchased on Amazon.com.au to be shipped from its local warehouses.
This business, Amazon Commercial Services, is estimated by research firm IBISWorld to hold only about 2 to 3 percent of the Australian online shopping market.
It employs about 195 people locally and earned $292.3m in revenue for the year ending December 2018 (its first full year of operation) but reported a loss of $4.4m. More than 50 per cent of its revenue came from related parties.
'Receipts from customers' amounted to $155.6m, while 'payments to suppliers' totalled $250.2m.
The company recorded $158.6m in 'general and administrative expenses'.
While the company reported a loss, it made a provision for income tax payments of under $1m.
Heather Rutherford, a regular shopper on Amazon.com.au and small business owner, said she had assumed money spent in Australia was fully taxed locally.
"If I'm buying most of my consumer goods and sending my money overseas, then I'm shooting myself in the foot."
Amazon boss Jeff Bezos. Photo: AFP
The big money generator: cloud computing
But it's not the online retail business that is the big money generator.
IBISWorld senior industry analyst Liam Harrison said Amazon made more money from its cloud-computing services than from its online retail business in Australia.
"Data-storage services are essentially the backbone of the internet; with no data-storage services you essentially don't have the internet," Mr Harrison said.
But again, Amazon's accounts indicate most of the revenue from its local arm selling data storage to business and government may actually flow overseas.
Amazon Web Services employs more than 1000 people locally.
The "revenue" of Amazon Web Services represents fees received for support services provided to "external third parties and to related companies", including "marketing, training and professional services", its accounts noted.
Its financial accounts show it earned $306m in "revenue" in 2018 (compared with $189m in 2017), which is growth of 61.7 percent.
Of that $306m in revenue, about $291m, or about 95 percent, came from related parties.
The entity paid $327.2m in "general and administrative expenses". Again it is not clear where this money flowed to.
Amazon Web Services' final income tax paid was $10.3m (up from $6.98m in 2017).
Amazon took on IBM in the data-storage game
The third and biggest entity in terms of related-party revenue is Amazon Corporate Services.
It employs about 400 people locally and, according to a report by IBISWorld, it holds about 19 percent of Australia's data-storage market, with the other main players being Equinix Australia, IBM and NextDC.
Amazon Corporate Services brought in $490m of revenue in 2018 (up from $375m in 2017) and this was exclusively from related parties.
Amazon Corporate Services paid out $466.8m in "general and administrative expenses".
Its final income tax paid was $10.3m in 2018 (up from $7.5m in 2017). This income tax paid was less than $10.7m in interest paid on loans.
While disclosure of related-party transactions is limited in the 2018 Australia filing, the financial statements of a Luxembourg company, Amazon Europe Core Sarl, show loans to Australia of $91m in 2017 and $157m in 2016.
These loans, with more than $4.8m in interest payments, have been repaid but may have been replaced with other arrangements that shift profits to Luxembourg.
A global minimum tax or more fights?
Despite the federal government giving the ATO more powers to hunt multinationals, taxing digital giants is a tricky game.
Mr Harrison said Amazon's structure was complicated because many of Amazon's goods were intangible and it was difficult to know how to tax it.
"It isn't clear cut and so, then, the ultimate parent company can decide."
A number of European countries such as France have already moved to tax digital giants on their revenue rather than profits.
Australia had toyed with the idea of a tax on digital companies' revenue, but then decided to wait for the OECD to hand down a global solution.
The OECD plan, expected to be handed down early next year, could introduce new measures such as a global minimum tax that applies to all multinationals.
Amazon told ABC News it welcomed the publication of proposals by the OECD, as a global agreement would "limit the risk of double taxation and distortive unilateral measures".
While big changes to the global tax system are coming, Mr Ward said there would be a fight between countries over how to fairly distribute the revenue.
The New Zealand government has proposed a digital services tax for big foreign owned technology companies such as Amazon and Apple but has delayed it to see if the OECD comes up with an acceptable global solution to make tech giants pay more tax.
-ABC
