Amazon.com - transfer pricing, taxation and the role of corporate social responsibility - Research Paper Example

? Amazon.com Introduction This research report contains the explanation of the factors that can affect the performance of any cyber multinational organization. These factors include the transfer pricing, taxation and the role of corporate social responsibility. An evolution of these issues is made in relation to Amozon.com. The first part of this report contains a short introduction of Amozon.com. The second part contains the explanation of affects of transfer pricing and taxation on Amozon.com. The role of taxation in transfer pricing and other tax issues are also included in this part of repot. In third part of this report, the affects of corporate social responsibility and reporting on Amozon.com are examined and discussed properly. Finally a short conclusion is also made at the end of this report. Shot Introduction of Amazon.com Amazon.com is operating as a largest cyber selling company in modern cyber environment. Amazon.com started their business by selling their first book in 1995. At that time the main aim of amazon is based on a dream to develop a new trend in e-commerce. After the great success of this business Amazon now have selling every kind of products and have many sites those are serving efficiently in seven countries. The working of Amazon is an art not a science. They are dealing in lots of products. The main art of capturing the cyber market is multi-level e-commerce strategy. Due to this strategy, anyone sell almost anything using the platform of Amazon.com. The another main key factor for the success of Amazon.com is their efficient data based system which has also ranked in the top three world largest Linux data base system in 2005. Tranfer pricing and Taxation Amazon.com is operating under the strategy of multi-level e-commerce and has a large number of department and websites those specializes in different kinds of products. On the other hand Amazon.com has their costumers all over the world. Due to the rapid increase in technology and awareness of cyber shopping in people, business of Amazon.com is increasing as at the speed of bullet. These certain factors directly affect the company’s policy about transfer pricing and their taxation systems. In this report a brief examination and evaluation of these issues are described below Transfer Pricing and taxation Issues for Amazon.com Simply the transfer pricing is the price that is set for the intercompany transactions. Transfer pricing is used when the divisions of an organization need to charge other divisions of the same organizations for the goods and services provide to them. For example as in the case of Amazon.com, it is mentioned earlier that Amazon is operating the variety of departments and websites in many countries. Transfer pricing in this might possible, as a department of Amazon in United Kingdom deals in a component in United Kingdom. The same component is also required by a costumer in China. The transfer of this component form the department in US to department in china will be valued at internal price and will be referred as transfer price. In the context of transfer pricing these some factors can effect on the operations of Amazon.com. Transfer prices are particularly appropriate for profit centers because if one profit center work for another, the size of the transfer price will affect the costs of one profit center and revenue to other. In the case of Amazon, each department has its own products and activities and every department in different counties is responsible to maintain its profit level. So in relation to the prospective of transfer pricing each department can try to work in their own interested segments to increase their profits. Decisions might be taken by a department manager in the best interest of his own part of business, and it may possible that this decision may affect against the interests of other departments. The profit center managers for Amazon tend to put their own profit performance above everything else. Since the profit center performance is measured according to the profit they earn, no profit center will want to do work for another and incur costs without being paid for it. Consequently, profit center managers are likely to dispute the size of transfer prices with each other. Or disagree about whether one profit center should do work for another or not. In this way transfer prices affect the behaviors and decisions of Amazon.com. In current modern environment, the main aim for any organization is profit maximization. As the Amazon is operating in current comparative cyber market, their main aim is to focus on the purpose of profit maximization. But the issue of transfer price can affect when there are dis agreements about how much work should be transferred between departments, and how many sales a department should make to the external market. On this level each department of Amazon will focus to maximize its own profits. In this situation the chance of disagreement might possible in the department of Amazon about output levels and this issue will directly effect on the goal of profit maximization. Foreign Currency risk in transfer pricing for Amazon.com According to the financial statements of the year ended 2010 of Amazon the company is facing the issues of the foreign currency risks in intercompany balances. And upon translation, operating results may differ materially from expectations, and Amazon may record significant gains or losses on the measurement of intercompany balances. (For more see page 10 of the Amazon’s Annual report 2010) Effect of Transfer Pricing on Taxation As it is stated in the earlier part of this repot that Transfer pricing is the price being set for intercompany transactions. This price can directly effect on the taxation of the Amazon.com. For example, as Amazon consists of several departments and websites those sell similar products all over the world. Department in CHINA may be dealing a product in the CHINA, while Department in United States is dealing with a product in Europe. Both departments of Amazon operate in the same cyber market. If department in china require a product that is operated by the department of United States, then this product is transferred on a discounted prices under the transfer prices strategy. The whole cost of this product is allocated to the department of United States but all the profits of this product are achieved by the department of China. But on the other side of the coin the extra profit that is earned by chines department will increase their tax on profits. Other Tax issues of Amazon.com The taxes charged on Amazon are based on a number of different factors. Many of the factors are involved like what product is shipping and from where it is shipping. As it is mentioned in the earlier part of this repot that Amazon is in contact with many of the third party retailers. These third party sellers are liable to calculate the taxes on the items most of the time. In the case of online stores the situation is bit different. For example if any of the customers come from a tax exempt state, than he does not pay any sales tax. If the customer come from a state that charges tax, then that tax is calculated based on his states sales tax amount. Amazon.com refund the taxes to those persons those are belong to tax free zones. Corporate Social Responsibility and Reporting Corporate social responsibility is simply means that how a company manage its business processes to produce a positive impact on overall society. The performance of any company can be negatively affected if the company fails to behave responsibly in business practices. The corporate strategy of Amazon.com state that their employees must follow the applicable laws, rules and regulations at all times. In the case of any ambiguity they can contact legal office for guidance. They have set the rules for their trading, relation with people and government. They have also cleared in their corporate strategy that they maintain their books; records; accounts and financial statements in efficient manner and published information reflects the Company's transactions and shows the clear picture of company’s internal controls. According to the corporate social responsibility and reporting strategy, their public financial reports contain full, fair, accurate, timely and understandable disclosure as required by law. The above Corporate strategy of Amazon seems good but as the Amazon.com is operating in the cyber industry and their main customer are the people who use the internet. The corporate social responsibility of Amazon can affect directly to their operations. According to the Company’s Annual Audit Report 2010 the auditors state that they are not able to carry their work in efficient manner because of company’s inherent limitations. According to the annual report of the company there are also some unresolved staff comments. According to a survey in United States the Amazon.com is ranked at 27 grades in the list of companies those are showing reasonable behaviors in current environment. For more information please visit http://www.bcccc.net/pdf/CSRIReport2010.pdf In short these factors are directly related to the social responsibility of the Amazon.com and can affect the future growth level of the company. For this, Amazon.com should need to manage their responsibility and reporting level in efficient manner to overcome any of future ambiguity. Conclusion The purpose of this report is to clear these mentioned issues can affect the Amazon’s performance in material manner. On the other hand, in current modern environment the value of cyber markets is increasing day by day. So it is much necessary for Amazon.com to control the all negative aspects of mentioned factors to win the race. There is also a strong need to control the problems that is stated is the Amazon’s Annual report. In short, by taking account of all these issues Amazon.com can perform in more efficient manner and easily capture the cyber market share in near future. Bibliography Amazon Corporate and Social Responsibility http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-govHighlights Financial 10K annual report of Amazon.com http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTA4OTN8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 Amazon Sales Tax Requirements http://www.amazon.com/gp/help/customer/display.html?nodeId=468512 Euromoney Trading Ltd., & Ernst & Young. (2011). Transfer pricing. London: Euromoney Trading Limited. BPP Learning Media (Firm), & Association of Chartered Certified Accountants (Great Britain). (2007). Acca - Paper P5 Advanced Performance Management: Study Text. London: BPP. ACCA, 2008/09: Paper P5. (2008). Wokingham: Kaplan Publishing. Read More