Rishi Sunak’s in-laws billed £5.5m in Amazon India Tax Dispute

A joint venture between Rishi Sunak’s in-laws and Amazon is in a dispute with the Indian tax authorities.

The disclosure adds to the list of legal battles currently involving the joint venture.

Small traders allege they are being forced out of business by the multinational’s selling practices and that Amazon’s £1 billion a year venture with Mr Sunak’s father-in-law, NR Narayana Murthy, could be bypassing Indian foreign ownership rules.

Amazon state it is operating in full compliance with local laws.

This follows the G7 talks when finance ministers agreed on a deal that is designed to make tech companies pay more tax.

In India, foreign companies are banned from running an online retailer that holds inventory and then sells the goods directly to Indian consumers online.

Instead, the Amazon.in website is run as a “marketplace”, with Indian retailers selling their products via the site in return for a fee to the company.

One of Amazon India’s largest sellers is Cloudtail, a business indirectly 76%-owned by an investment firm controlled by the Murthy family.

The remaining quarter is owned by Amazon.

The Guardian reported that Cloudtail:

• Faces a £5.5m demand – including “interest and penalties” – from India’s tax authorities.
• Has paid “meagre” taxes over the past four years, while using a business model described as Amazon “on steroids”.
• Has filled its top two posts – chief executive and finance director – with Amazon executives, while Cloudtail’s holding company, Prione, has also been run by former Amazon managers.

Cloudtail’s most recent accounts state: “The company has received a show-cause notice in the current year from Directorate General of Goods and Service Tax Intelligence amounting to INR 5,455 lakhs [£5.5m] along with interest and penalties for service tax-related matters.”

It is not exactly known what the tax dispute is about.

The company is contesting the bill and added:

“Since this matter is sub judice, we are unable to comment any further.”

The annual report also revealed that Cloudtail paid Amazon £95 million in 2020, almost 10 times more than the business reported in profit.

The Fair Tax Foundation analysed Cloudtail’s accounts and found that “corporation tax contributions are meagre”, with £830,000 paid in tax per annum compared with £798 million of revenue when averaged over the past four years.

In its last financial year, Cloudtail paid around £3.4 million in cash taxes on revenues of £1.1 billion.

Paul Monaghan, chief executive of the Fair Tax Foundation, said:

“Cloudtail’s business model would seem to be the same as Amazon’s across the globe, but on steroids.

“We are seeing the usual rapid growth in revenue, but the profit margins are wafer-thin at 0.3% over the last four years – it’s practically being operated at cost.

“How on earth can anyone else compete locally, especially when Cloudtail is essentially a box for Amazon’s trillion-dollar machine?”

Rishi Sunak is believed to be the UK’s richest member of parliament.

His wealth is thought to be derived from his wife’s family.

Rashmi Das, an author specialising in Indian e-commerce, said:

“The whole structure raises questions if Cloudtail is really an asset of Amazon – and if the Murthys are the name lenders.

“The exact detail of the deal will only be known if the investigation agencies seek details of their shareholder agreements.”

The questions around Cloudtail’s control also prompted the Confederation of All India Traders (CAIT) to ask the minister of commerce in February 2021 to investigate the joint venture in a bid to find out why its key staff have typically joined from Amazon.

In its letter to the ministry, CAIT said:

“Even though Murthy holds the majority of shares, he has allowed the (so-called) former employees of Amazon on the driver’s seat of both Cloudtail and Prione… The role of Murthy requires appropriate investigation.”

CAIT continues to press the ministry to investigate. Meanwhile, Amazon faces two potential inquiries by the Competition Commission of India (CCI).

On June 11, 2021, the commission received permission to relaunch an investigation into Amazon’s selling practices, which include Cloudtail.

Meanwhile, the CCI is considering whether a second complaint against Amazon and Cloudtail should be investigated.

A spokesperson for Prione, Cloudtail, Catamaran and the Murthy family said:

“Cloudtail has not violated any law and is in full compliance with the law of the land in letter and in spirit.”

“The Murthy family has put in the required equity capital in Prione [parent company of Cloudtail], commensurate with its shareholding.

“The allegations are baseless and incorrect.

“Cloudtail is an independent company that makes business decisions to protect its interests. Cloudtail is governed by a board of directors.

“Catamaran has [a] majority of the directors and therefore controls the board.

“The members on the board from Catamaran are high-quality professionals with extensive business experience.

“The details of the decisions and deliberations of the board of Cloudtail are minuted and available for inspection by the relevant Indian authorities.”

A spokesperson for Amazon said: “Amazon in India has always been fully compliant with all Indian laws.

“Specifically, our joint venture with Catamaran, as well as our marketplace operations, are in compliance with Indian [foreign direct investment] laws, and that includes Cloudtail as a seller.”

A Treasury spokeswoman said: “Reaching an international agreement on how large digital companies are taxed has been a priority for the chancellor since he took office.

“The chancellor’s consistent position has been that it matters where tax is paid, and any agreement must ensure digital businesses pay tax in the UK that reflects their economic activities.

“That is what our taxpayers would expect and is the right thing.”