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Finance ministers plan a foray into Amazon’s lucrative cloud computing business to make sure it pays more corporate taxes under the new G7 agreement on a global rate.
While Amazon appears to be falling outside the profit margin threshold set by the G7, the $ 1.6 million technology group will have to pay more corporate taxes in some of its larger markets if agreement on a global rate is ratified, according to people close to the negotiations.
Amazon did not start generating significant profits until 2017 and has been consistently below the 10% margin threshold set by the G7.
However, the OECD in Paris, which is convening international negotiations on the global rate, is exploring a special measure to treat Amazon’s cloud computing division as an independent entity, a person informed of the debates said. The measure would ensure that Amazon pays more taxes to large European countries such as France, Germany, the United Kingdom and Italy.
Amazon Web Services ’operating revenue increased 47% to $ 13.5 billion last year, generating a healthy operating margin of 30% in 2020, compared to 3% of its retail business.
The OECD proposal on the application of the rules to large and profitable divisions of companies would ensure that all US technology giants are caught up in the G7 global tax deal.
The G7 statement over the weekend left vague details of the moves to get companies to pay more taxes in the jurisdictions where they operate. The group said countries where sales were made “would be granted tax rights of 20% profit above 10% margin for larger, more profitable multinational companies.”
Amazon Web Services was founded in 2006, but Amazon didn’t break the unit’s financial performance until 2015. Last year’s revenue grew 30%, to $ 45.4 billion. Amazon shares have risen more than 700 percent since it began revealing AWS performance.
Janet Yellen, the U.S. Treasury Secretary, noted over the weekend that all American tech giants would be covered. Asked specifically about Facebook and Amazon, she said the G7 deal “would include large profitable companies, and those companies, I think, will qualify according to almost any definition.”
Amazon declined to comment, but described the G7 deal over the weekend as a “good step forward.”
“We believe an OECD-led process that creates a multilateral solution will help provide stability to 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, challenged the idea that finance ministers could fabricate a way to include Amazon in the proposals.
“If you’re designing rules to target specific or individual companies, I’m not sure it’s a good foundation to continue,” Coffey said. “Retail is a low-margin business, just because you do it online doesn’t change that.”
The proposed new system of allocating some of the global profits of the largest multinationals to the countries where they made their sales was unlikely to achieve large sums, tax experts said.
Probably several billionaire Silicon Valley companies would be excluded from the “Pillar 1” proposals, including Uber, Tesla, Twitter, and Snap, as they remain losses or their pre-tax profit margin was below the threshold. 10 percent last year.
More money will be raised at the proposed minimum global corporate tax rate at an effective rate of at least 15% if applied in each country. In this case, most of the additional revenue will go to the US.
The United States will earn a lot because its multinationals have shifted profits around the world to avoid U.S. corporate taxes, leaving them with one of the lowest taxes that takes advantage of these advanced nations rates. The United States currently collects 1% of national corporate income tax revenue, compared to an OECD-wide average of 3%.
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