Amazon in the dock

It was impossible not to enjoy Amazon's evisceration at the hands of MPs earlier this week as the internet retailer sought to answer no questions whatsoever about its tax affairs. But fun aside, the session told us as much about our legislators as it did about Amazon.

Did Public Accounts Committee chair Margaret Hodge really not realise that one of the UK's biggest companies, one now so central to a number of content industries, was based in Luxembourg for tax purposes? She seemed at times aghast and appalled that she could buy a book that never left this island from a company registered in the Grand Duchy. Yet none of this is new. The Bookseller reported back in March that Amazon was being investigated by the UK tax authorities, a report that the Guardian followed up. The move to Luxembourg actually dates back to 2004, with the UK businesses transferred over there in 2006.

As chair of PAC, since 2010, Hodge appears to be more George Entwistle than John Humphreys. The piece of theatre we witnessed yesterday could have come at any point over the past decade.

Hodge told Amazon's director of public policy Andrew Cecil that Amazon was putting local booksellers out of business because its tax avoidance was making it impossible for them to compete: those independent booksellers already put out of business must have been thrilled. What is important is what comes next. The UK government has shown a sympathetic ear to the internet giants, partly because in an age of austerity any company creating jobs is to be welcomed.

Prime minister David Cameron was even quoted in a recent Amazon press release, announcing the creation of  2,000 new permanent jobs over the next two years. He said: "This shows that the UK has the infrastructure and talent to continue to attract major investments from leading companies such as Amazon." These companies are not without their allies in Brussels too.

This is important. This PR skirmish may be wounding to Amazon, but that is like a pimple compared to the gash that could be opened up should it begin to lose some of these battles politically. There is little sign of that however. We do not know how much influence Amazon had over the European Commission's probe into e-book prices, or the Department of Justice's lawsuit, but it could not have drafted a better verdict in either jurisdiction. As the European Commission seeks to resolve the VAT issue that allows Luxembourg-based companies to charge 3% VAT on e-books, and starts to review the merger between Random House and Penguin, what Amazon does behind the scenes will be much more important than what it does infront of the cameras.

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