The Group of Seven wealthy nations may have endorsed a plan to ensure the world’s biggest companies pay a minimum global tax rate, but US tech behemoth Amazon may escape part of its provisions.
The landmark deal is supposed to help put an end to top multinationals shopping for countries with low corporate tax rates in which to book their profits instead of paying where they conduct their business.
By introducing a minimum tax rate of 15% without exceptions, proponents of the plan hope multinationals will have less incentive to go through complex efforts to shift where they pay taxes.
There is a second “pillar” in the plan that countries would be allowed to tax a share of the profits of the most profitable companies in the world, regardless of where they are based.
The caveat is that it applies only to large international firms whose profit margins exceed 10%. That would affect about 100 companies, including US tech giants such as Facebook and Google, but as some experts have pointed out, not Amazon.
Despite Amazon’s colossal footprint and market capitalisation of more than $1 trillion, its profit margin last year amounted to just 6.3%.
French Finance Minister Bruno Le Maire told broadcaster RMC that the potential loophole would not stand. The tax reform “must apply to Amazon,” he said. “France will fight to make sure that it does.”
He said the tax reform had been negotiated at the Organisation for Economic Co-operation and Development with the specific aim of making all digital giants pay their fair share.
“The problem with Amazon is that some of its businesses do not generate a profit margin of more than 10%,” Le Maire said, singling out its deliveries branch.
At Amazon’s cloud-based services, meanwhile, margins are “very large”, he said.
The answer was to treat Amazon’s businesses separately for tax purposes “so that all the very profitable parts are certain to be subject to this digital taxation”.
Le Maire acknowledged there were several obstacles still to overcome before the world could apply the digital tax regime.
One was that China’s agreement was needed. “Believe me, that’s going to be a very different ballgame,” Le Maire said.
Another is the hope of some European countries to go beyond the 15% tax rate, which Le Maire said constituted only a “minimum rate”.
The final challenge is to make sure that “all digital giants are subject to this tax without exception.”
On Amazon’s loophole, Britain’s Fair Tax Foundation said this was “just one more reason” for the Group of 20 industrialised and emerging countries to “revisit and embolden the package” when they meet next month.
A source close to the talks confirmed that Amazon overall would not fall under the provisions allowing countries to tax part of its profits.
However, its cloud computing arm, Amazon Web Services (AWS), “turns in profits of around 30%” and “it will therefore be taxed on this segment of activity” by different nations, said the source.
There is no other exception or loophole in the provisions, the source added.
Amazon, which has been surfing an e-commerce wave since Covid-19 hammered bricks and mortar retail, more than tripled its first quarter net profit for this year to $8.1 billion.