Pass the duchy: How Amazon keeps its UK tax bill low

Amazon may employ thousands of people in the UK, but its European headquarters is in the tax haven of Luxembourg, where it employs several hundred staff.

Consumers buy from the company's UK website and the items are delivered from British warehouses.

But they and people buying from Amazon websites in other European countries are buying items from a company called Amazon EU Sarl, based in the tiny duchy bordering Belgium, France and Germany.

This allows the company to legitimately lower its tax bill. It is taxed at the lower rate in Luxembourg and then pays less corporation tax where the rate is higher in the UK.

Company reports for 2012 showed Amazon paid tax of £3.2 million on sales of £320 million. In 2011, it paid £1.8 million on sales of £207 million.

However, these figures are being disputed, with claims today that the company told investors its sales in the UK totalled £4.2 billion last year.

If the figures filed are accurate the process is legal. However some have questioned the morality of such an arrangement, saying taxes should be paid in the country where they are generated rather than being moved offshore to jurisdictions with lower tax rates.

Along with Starbucks and Google, Amazon was accused by the Public Accounts Committee in December of "immorally" minimising their UK tax bills.

In a damning report the PAC criticised the companies for the "unconvincing and, in some cases, evasive" evidence they gave on why their corporation tax payments were so low.

Prime Minister David Cameron criticised "aggressive" tax avoidance today.

In February he said the Government wanted to keep business taxes low, but in return businesses must accept that they have to pay their fair share.

MPs have questioned the arrangement in the Commons.

In January, during a backbench debate, Tory Nick Gibb (Bognor Regis and Littlehampton) said: "To me, when driving up the M1 and seeing those huge Amazon buildings that package and dispatch millions of books a year, I can't help thinking they look permanent to me. But technically that is not the case.

"It is a legal fiction because all the economic activity for the transaction of my book purchase has taken place in the UK."

PA