Amazon UK has generated £3.3 billion in the country last year, but did not pay any profits from that income. Currently they are under investigation by the tax authorities in the U.K. Regulatory filings by Amazon.com with the S.E.C. are showing the tax inquiry in the U.K. operations, which sells about one in four books sold in Britain. The filing focuses on the time that Amazon.com transferred the British business to a company in Luxembourg.
Amazon generated £7.6 billion in the U.K. throughout the past three years without attracting any corporation tax on the profits from those sales. Amazon launched the U.K. version in 1998. The U.K. business is owned by Amazon EU Sarl and the operation is only considered an order fulfillment business.
Amazon wouldn’t comment about why they switched ownership of the U.K. business to Luxembourg. However Amazon.com suggested that it may have been done to reduce the group tax bill. In a 2006 SEC filing, Amazon.com referred to “establishing our European headquarters in Luxembourg, which we expect will benefit our effective tax rate over time.” By basing their U.K. operations in Luxembourg, Amazon.com can charge VAT on e-book sales a the local rate of 3% instead of the 20% VAT that is imposed on British-based e-book retailers.