“Juggling the Books Doesn’t Stack Up”: Why Book-sellers and Publishers Should Care about the 2015 Fe
It is well known that the number of bookshops in Australia is dwindling. What is less well known is that the Australian book and publishing industry has been adversely affected by the tax avoidance strategies adopted by large companies.
In an opinion piece in the Fairfax Press in 2013 -http://www.canberratimes.com.au/comment/amazon-juggling-the-books-doesnt-stack-up-20130619-2oiy8.html - I argued that: “It is well known that the number of bookshops in Australia is dwindling. In part that's because of online retailers such as Amazon, who are engaging in predatory pricing. This is a strategy that involves selling books at artificially low prices. The goal is to drive out existing competitors and discourage the entry into the market of new ones, and thereby become a monopolist who can subsequently increase the price.”
But there's another aspect to Amazon's behaviour that gives it a competitive advantage, and this is its tax avoidance. Google and other large multinationals are also subject to the same criticism. “The first thing that might come to mind when you think of Amazon is that it's a large and efficient organisation. And yes, of course it is that. Amazon is an innovative and imaginative company, too. But did you know that it is also… [avoiding tax] on a major scale? And that its… actions are giving it a pricing advantage that is squeezing our booksellers and publishers?”
In basing its European operations in Britain, “Amazon is taking advantage of the locational, infrastructure and legal system paid for by British taxpayers. Yet it is contributing very little in taxes.”
How is it doing this? By claiming that it does not have a permanent establishment in Britain, that its head office is based in Luxembourg, and that it is therefore not subject to corporation tax in the same way as other Britain-based book retailers.
“Amazon is not alone in this... Google is also a beneficiary. Recently Google's head of sales in northern Europe was required to explain the situation to Britain's House of Commons Public Accounts Committee. There it emerged that the vast majority of Google's £3.2 billion British sales are routed to Ireland and that the company paid only £6 million of corporation tax. Recently it has been reported that Britain, France and Germany are calling for stricter rules to stop large companies such as Apple, Google and Amazon engaging in tax evasion.”
A similar scenario has played out in Australia. At the Australian Senate inquiry into corporate tax avoidance, the same concerns were raised. Moreover, the Australian Taxation Office reportedly handed a new methodology for calculating the amount of tax that multinationals should pay - see Chris Duckett at http://www.zdnet.com/article/multinational-tax-dodgers-could-be-in-contempt-of-parliament-report/.
Quoting again from my opinion piece in the Fairfax media: “So far I've only mentioned corporation tax. What about consumption taxes - or what we call GST? In Australia, we pay GST on books. Already this gives British retailers such as Amazon.co.uk a pricing advantage, for in Britain books are zero-rated. What about in the US?”
“The magazine Fortune recently reported that Amazon.com has been working assiduously to avoid US sales tax (see: http://tech.fortune.cnn.com/2013/05/23/inside-amazons-tax-fight/). In so doing Amazon is achieving a significant pricing advantage over its rivals, an important reason behind its rapid success during the past decade and a half.”
“Our booksellers don't receive this sort of funding advantage. They cannot avoid taxes as Amazon has so successfully done in Europe and in the US.”
“If our local booksellers shut, you'll be able to purchase books through only a handful of online retailers such as Amazon. And our publishers and royalties will be squeezed, as our book orders wing their way around the world accruing air miles and pumping out carbon.”
What can the Australian government do about this? It can implement a consumption tax on our foreign purchases that is at the same rate as our GST. This would not only create a more equal playing field for the Australian book industry, but would also help maintain our tax base. It can also work out ways of cracking down on corporate tax avoidance.
Let’s hope that Treasurer Joe Hockey’s 2015 Budget brings some action on this front before it is too late. For it is not only the Australian book and publishing industry that has been adversely affected by the tax avoidance strategies adopted by large companies. The budget deficit has also been affected, and this has knock-on effects for us all.