Finance ministers plan to raid Amazon’s lucrative cloud computing business to ensure it pays more corporate tax under the new G7 agreement on a global rate basis.
Although Amazon appears to be falling outside the profit margin threshold set by the G7, the $1.6 trillion tech conglomerate will have to pay more corporate taxes in some of its largest markets if the new G7 agreement on a global rate is ratified, according to people close to it. negotiations.
Amazon didn’t start making big profits until 2017 and was consistently below the 10 percent margin threshold set by the G7.
However, the Organization for Economic Co-operation and Development in Paris, which is holding international negotiations on the global price, is exploring a special procedure to treat Amazon’s cloud computing division as a separate entity, a person familiar with the discussions said. The measure will ensure that Amazon pays more taxes in large European countries such as France, Germany, the United Kingdom and Italy.
Amazon Web Services’ operating income jumped 47 percent to $13.5 billion last year, yielding a decent 30 percent operating margin in 2020, compared to 3 percent for its retail business.
The OECD proposal to apply rules to large and profitable divisions of companies would ensure that all US tech giants are trapped under the G7 global tax agreement.
In the G7 statement at the end of the week Details of the moves to get companies to pay more taxes in the jurisdictions in which they operate have been left murky. The group said that the countries where the sales are made “would grant tax rights of 20 percent of profits in excess of 10 percent to the largest and most profitable multinational corporations”.
Amazon Web Services was founded in 2006 but Amazon didn’t detail the unit’s financial performance until 2015. Revenue grew 30 percent last year to $45.4 billion. Amazon shares are up more than 700 percent since it began revealing how AWS is performing.
Janet Yellen, the US Treasury Secretary, indicated over the weekend that all US tech giants will be covered. When asked specifically about Facebook and Amazon, she said the G7 agreement “will involve large, profitable companies, and I think those companies would qualify by almost any definition.”
Amazon declined to comment but called the weekend’s G7 agreement a “welcome step forward”.
“We believe that the 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 adviser to the Irish government on tax reform, has challenged the idea that finance ministers might come up with a way to include Amazon in the proposals.
“If you’re designing rules to target specific companies or individual businesses, I’m not sure that’s a good basis for moving forward,” Covey said. “Retail is a low-margin business – just because you’re doing it online doesn’t change that.”
Tax experts said the proposed new system to allocate some of the world’s largest multinationals’ profits to the countries where they generated their sales is unlikely to raise large sums.
Several multi-billion dollar Silicon Valley companies will likely be disqualified from the “Pillar One” proposals, including Uber, Tesla, Twitter and Snap, because they are still making losses, or their pre-tax profit margins were below the 10 percent threshold last year .
More money will be raised through the proposed global minimum corporate tax rate with an effective rate of “at least 15 percent” if applied on a country-by-country basis. In this case, the lion’s share of the additional revenue will go to the United States.
The United States is expected to reap significant gains because its multinational corporations have shifted their profits around the world to avoid US corporate taxes, making it one of the least taxable they receive from these duties levied on developed nations. The United States currently collects 1 percent of national income from taxes on corporate profits, compared to an average of 3 percent across the Organization for Economic Co-operation and Development.