Finance ministers are planning a crackdown on Amazon’s lucrative cloud computing business to ensure Amazon pays more corporate tax at a global rate under the new G7 deal.
While Amazon does not appear to exceed the profit margin set by the G7, the tech giant, with $ 1.6 trillion in some of its largest markets, will have to pay more corporate tax if the deal is ratified on a global rate, according to people close to the negotiations stand .
Amazon only started generating significant profits in 2017, and these are consistently below the 10 percent margin agreed by the G7 over the weekend.
However, the OECD in Paris, which is convening the international negotiations on the global tariff, is considering a special measure to treat Amazon’s cloud computing division as a separate entity, said a person briefed on the discussions. The move would force Amazon to pay more taxes in major European countries like France, Germany, the UK and Italy.
Amazon Web Services’ operating income rose 47 percent last year to $ 13.5 billion and achieved a healthy operating margin of 30 percent in 2020, compared to 3 percent for the retail business.
The OECD proposal to apply the rules to large and profitable business units would ensure that all US technology giants are covered by the G7 global tax treaty.
In the weekend’s G7 communiqué, details of the steps to be taken to encourage companies to pay more taxes in the jurisdictions in which they operate were left vague. The group said that countries where sales are being made “the largest and most profitable multinational corporations are granted tax rights of 20 percent profit that exceed a 10 percent margin.”
Amazon Web Services was founded in 2006, but Amazon didn’t work out the entity’s financial performance until 2015. Revenue rose 30 percent last year to $ 45.4 billion. Amazon’s stocks have risen more than 700 percent since the AWS performance began posting.
Janet Yellen, US Treasury Secretary, signaled over the weekend that all US tech giants would be covered by the deal. When asked specifically about Facebook and Amazon, she said that the G7 deal would “include large profitable companies, and these companies, I believe, will qualify by almost any definition.”
Amazon declined to comment, but described the weekend’s G7 agreement as a “welcome step forward”.
“We believe that an OECD-led process that creates a multilateral solution will help stabilize the international tax system,” the company said.
Seamus Coffey, an economist at University College Cork and a former tax reform advisor to the Irish government, questioned the idea that Treasury ministers could develop a way to involve Amazon in the proposals.
“If you are developing rules for specific or individual companies, I am not sure that this is a good basis on which to proceed,” said Coffey. “Retail is a low-margin business – just because you do it online doesn’t change anything.”
The proposed system of allocating the global profits of the largest multinationals to the countries in which they have made their sales is unlikely to bring in large sums, tax experts said.
Several billion dollar Silicon Valley companies would likely be banned from the Pillar 1 proposals, including Uber, Tesla, Twitter and Snap, because they continued to lose money or their pre-tax profit margin fell below the 10 percent mark in the past year .
More money will be raised through the proposed global minimum corporate tax at an effective rate of “at least 15 percent” when applied on a country basis. In this case, the lion’s share of the additional revenue will go to the US.
The US will win big because its multinationals have shifted their profits around the world to avoid domestic corporate taxes, which gives it one of the lowest tax revenues among developed countries. The US currently levies 1 percent of national income tax on corporate profits, compared to an OECD average of 3 percent.