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May 25, 2022

AWS handed £600m in UK public sector contracts as its tax affairs are questioned

The cloud provider has received millions in public funds, but critics say it doesn't pay enough tax.

By Sophia Waterfield

Amazon’s cloud computing division AWS has landed nearly £600m in UK public sector contracts since 2017, during which time it avoided paying some £84m in taxes, a new report claims. The criticism comes ahead of Amazon’s annual general meeting today, where shareholders could force the company to release more details of its tax affairs.

AWS has received a raft of public sector contracts (Photo by Henrique Casinhas/SOPA Images/LightRocket via Getty Images)

The report by the Centre for International Corporate Tax Accountability and Research (CICTAR) and think tank TaxWatch says that between 2018 and 2021, AWS receiving £597m in public sector contract revenue. This was mainly from departments such as the Home Office, (£225m), HMRC (£162m), Department of Work and Pensions (DWP) (£60m), Ministry of Justice (£46m) and the NHS (£15m). AWS also provides services to Mi6, Mi5 and the Ministry of Defence.

In 2020, as public sector departments started accelerating their move to the cloud, AWS drew in more public funds. This is, in part, due to the Covid-19 pandemic, which saw digital transformation urgently undertaken by government bodies, as well as the end of contracts with other suppliers.

CICTAR's report says that in the years leading up to 2018, AWS received £20m in public sector contracts. However, between 2018 and 2021, AWS' revenue from public funds jumped to £597m. From 2020, there was a further surge in contract wins resulting in AWS winning £350m in revenue. AWS is also used by over 150 companies who also provide £1.3bn services to the government via AWS' G-Cloud.

This growth comes against a backdrop of sustained criticism of the company's tax affairs. As it stands, Amazon does not provide a breakdown in its accounts of revenues, profits and tax payments in non-United States markets, but in the report, analyst Vivek Kotecha, says that while Amazon's 2019 global aggregated accounts show net sales in the UK of £13.7bn, UK filings for Amazon's subsidiaries there reflected only a small fraction of this amount.

Kotecha estimates that up to £8.2bn, which is 60% of Amazon's revenues, might have been shifted to Luxembourg. He also says that Amazon paid tax on only around 0.6% of its total sales, based on the company's records. This means it avoided paying some £84m on tax that would have otherwise been due.

Amazon contests this, according to the report, saying that estimates are "wildly inaccurate". However, it does not provide any figures for corporate income tax payments and only provided figures for direct and indirect taxes.

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“Our UK retail and Amazon Web Services revenues are recorded here in the UK and reported directly to HMRC," the company is quoted in the report. "Our total tax contribution in the UK was £1.1bn during 2019 – £293m in direct taxes and £854m in indirect taxes.”

Last year, Prime Minister Boris Johnson met with Amazon founder Jeff Bezos for talks aimed at convincing the company to pay its fair share of tax.

AWS UK tax concessions are meant for small businesses

As part of its report, CICTAR comments that Amazon may be avoiding paying tax due to a temporary tax relief on qualifying capital asset investments.

Announced as part of the UK's Spring Budget on March 3, 2021, the measure is to give increased relief for "expenditure on plant and machinery" incurred from April 1, 2021, up to and including March 31, 2023. Companies can claim these expenses as investment during this period. "Analysis by TaxWatch of Amazon’s UK accounts suggests that the new concession could eliminate the company’s tax bill," says the report.

In 2019, Amazon UK Services Limited, made profits before tax of £102m; its tax liability was £6.3m, the report says. It then states that Amazon UK also spent £66.8m on plant and machinery, £80.4m on office equipment, and £15.3m on computer equipment. "Applying the new tax concession for deducting 130% of the cost of capital goods, Amazon’s tax liability would be zero," the report explains. Amazon’s UK-based companies' effective current tax rates are lower than the 19% UK corporation tax rate.

Rob Anderson, research director for public sector, at GlobalData, told Tech Monitor that this concession was meant for smaller businesses and not larger companies such as Amazon: "The idea of [the concession] was to help smaller businesses invest in new technology, but because Amazon build data centres here and therefore buy equipment to go in them, they get that benefit too," he says.

In a statement to Tech Monitor, Amazon pointed to its plans to invest £1.8bn in the UK, doubling its workforce to over 70,000. "This continued investment helped contribute to a total tax contribution of £1.55 billion during 2020 – £492m in direct taxes and £1.06bn in indirect taxes," the company said.

"Public sector organisations in the UK use the UK branch of AWS Europe which registers its sales in the UK and pays all applicable taxes, due on its profits, directly to HMRC," it added.

Will the government crackdown on Amazon AWS contracts?

Anderson says that the growth of public sector contracts awarded to AWS is likely to be in line with those experienced by other cloud providers such as Microsoft Azure. "It's not so easily drawn out from Microsoft because they have a whole raft of licensing," he explains. "They work predominantly on an indirect model."

Anderson also says that other smaller cloud providers will have seen increases in contract wins, but the focus is on AWS because of its big contracts with the Home Office and the ambiguity over its tax. AWS also has a contract with HMRC, which is responsible for the collection of taxes in the UK, and Anderson says this could be seen as a conflict of interest.

"There's a lot of people pointing that out [to government]," he says. "The problem is that they deliver a very good service that big departments feel they need to be able to rely upon to deliver citizen services.

"I think the government is scared to go too hard on them, because they could take [services] away or raise prices such that the government isn't getting value for money," he adds. Anderson also wonders whether the government is getting value for money as he says that while AWS is competitive in prices, there is no "retrospective analysis" of spending.

He explains: "It's a difficult one; they offer a very competitive price to get people on board, but once people increase the number of services, the price increases.

"There are not sufficient numbers of departments looking at the overall cost of ownership to say whether they are getting good value for money, so they tend to look a the price up front rather than how much it costs them over five years."

Amazon shareholder meeting could bring about tax changes

CICTAR and TaxWatch say that investors will vote at the shareholder meeting today on whether to implement the Global Reporting Initiative (GRI) Tax Standard, a motion which was filed by the Greater Manchester Pension Fund (GMPF), the UK's largest local government pension fund, and the Oblate International Pastrol Investment Trust. This was filed in December 2021.

The report says that Amazon’s board of directors is recommending shareholders vote against this proposal as it “would potentially force disclosure of competitively sensitive information about our operations and cost structures and would hamper our ability to make operational decisions".

Read more: AWS to double UK investment with £1.8bn pledge

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