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Comment by piggyback | Hacker News Reader

Did Amazon Prime previously operate on a loss or are they just trying to make more money since it has gained enough momentum?

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Prime is considered a marketing expense. Amazon absorbs hundreds of millions or even a billion dollars in shipping charges through prime. It's a huge reason they have a thin profit margin.

They shouldn't even have a profit margin, they pay no tax inside the UK.

A business shouldn't make money? Surely that isn't what you meant...

That's populist propaganda. Businesses are taxed on profit, not revenue. Even if they were 100% based in the UK, they'd still probably pay very low corporate taxes (if any) due to the thin margin. They actually do pay an enormous amount of tax in the UK in the form of payroll taxes, VAT collections, etc.

It's sad to see people propagate this crap. It's really about veiled protectionism. A big, efficient player comes in and is willing to forego profit indefinitely. Can't tax them legally, so shame them. Tax on 0 is 0. That's how it works for UK companies too. Try reading between the lines...

Then why is Luxembourg such a magnet? It's not just Amazon, companies that exclusively cater for the UK market moved their base there.

Luxembourg is a magnet because the UK government is stupid and creates taxes that are easily avoidable.

Exactly my point, if Amazon are making little now through tax loopholes what happens when they are fixed.

How is it a "loophole"?

Amazon runs a business in the UK, they are owned by a parent company in Luxembourg that they pay the majority of all their revenue to, thus making almost no profit, thus paying very little in tax.

They run a business in the UK but pay almost nothing in tax, it should be fixed its not fair on small business owners who have to pay all of there tax and get hammered for it.

Can you not see how its a loop hole? It can so easily be fixed.

Yeah, the reason AMZN doesn't pay UK tax is NOT because they are not profitable. It is because they legally avoid taxes by basing all their EU operations out of Luxemburg. Tax codes need reform world-wide to avoid this kind of bad behavior.

So if Etsy sells something to Portugal, should you pay Portuguese corporate taxes?

I'm sure we won't mind the income ;)

That's different Amazon actually has property in the UK, large warehouses, staff among other things.

Etsy also ships physical things, the only difference is that they subcontract to a delivery company, who obviously doesn't pay taxes over Etsy's profits.

But actually, it's not different, because Amazon also subcontracts, the only difference is that the subcontracted delivery company is named... Amazon. So what they're doing is the same as any companies that ships products to the UK, except that they happen to own both companies and they have similar names.

I fail to see the reason why should Amazon UK pay for the profits earned by Amazon Luxembourg, when DHL or whoever don't pay for Etsy's profits that come from the UK.

Shall we remove all there distribution centres then? Since they can just have a global warehouse in Luxembourg? Since they don't need them.

Revenue sent to a parent company abroad is deducted as an expense? I find that hard to believe.

According to this article[1], what they actually do is send the payments directly to the Luxembourg company, and Amazon UK is just classified as a delivery company. That makes sense, and frankly, it doesn't shock me. I'm from Portugal and I just bought some comics from an US company. Should they start paying Portuguese corporate taxes?

I mean they don't pay corporation tax, they're based in Luxembourg for that reason. Why should I have to pay a ridiculous amount of money, when they don't pay anything.

They pay corp tax on the profit they earn in their UK's operations. Just like every other company with operations in the UK.

What percentage of your revenue do you pay in corporate taxes? None! You only pay a percentage of profit. (extremely thin for Amazon) They base in Luxembourg to benefit from UK laws and EU regulation. The UK media and government quoting billions in revenue is meaningless. They're trying to stir you up. They would relatively nothing in corp tax relative to their other tax footprint (payroll, vat, etc) and would absolutely spend it all to avoid doing so.

As SpikeGronim mentioned, they are operating at a very small profit. Investors are starting to get wary about it so they need to do something to increase those numbers.

Financial Info. https://www.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii&ei=...

I seem to recall reading they made money on each Prime customer and a quick search turns up several articles[0] confirming as much.

[0] http://business.time.com/2013/03/18/amazon-prime-bigger-more...

Prime was famously a money loser. Since, as they point out, it's been the same price for nine years, it might well still be a money loser.

Amazon would almost be considered a money loser as their strategy has always been to go long ... very long (which urks many investors)

I think Prime has always been a money loser for them. There is no way that my shipping charges was less then $100 for the past 4 years.

If it made you buy product you wouldn't normally have bought through amazon then they can still make a profit even if the prime membership does not finance the whole shipping charges.

Plus, increased shipping costs are counterbalanced by the fact they don't need to run lots of brick-and-mortar locations.

Amazon barely makes any money, and they actually have been losing money the last several quarters.

Amazon's quarterly losses are largely do to not caring too much about quarterly reports and focusing more on long term investments.

Spending 10 million on warehouses doesn't reduce their profit by 10 million for that quarter. The point is they do not make money, and people who somehow overlook this by suggesting they are focused on longer term infrastructure investments needs to brush up on accounting (profit vs cash flow). Capital expenditures are not treated as expenses.

Interesting. I would love to learn more about accounting. Do you have a suggestion on where to start? (book or otherwise).

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