Amazon could sidestep proposed global tax rules with its low profit margin

An Amazon worker delivering a package at a residential building in Ahmedabad, India, on March 17. Despite Amazon's colossal footprint and market capitalisation of more than US$1 trillion (S$1.3 trillion), its profit margin last year amounted to just
An Amazon worker delivering a package at a residential building in Ahmedabad, India, on March 17. Despite Amazon's colossal footprint and market capitalisation of more than US$1 trillion (S$1.3 trillion), its profit margin last year amounted to just 6.3 per cent. PHOTO: REUTERS

PARIS • The Group of Seven (G-7) 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 multinational corporations (MNCs) 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 per cent without exceptions, proponents of the plan hope MNCs will have less incentive to go through complex efforts to shift where they pay taxes.

There is a second "pillar" in the plan: Countries would be allowed to tax a share of the profits of the most profitable firms in the world, regardless of where they are based.

The caveat: It applies only to large international firms whose profit margins exceed 10 per cent.

That would affect about 100 firms, including Facebook and Google, but as some experts have pointed out, not Amazon.

Despite Amazon's colossal footprint and market capitalisation of more than US$1 trillion (S$1.3 trillion), its profit margin last year amounted to just 6.3 per cent.

However its cloud computing arm, Amazon Web Services (AWS), "turns in profits of around 30 per cent" 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 more than tripled its first-quarter net profit for this year to US$8.1 billion. AWS, meanwhile, saw its quarterly sales soar 32 per cent to US$13.5 billion.

Amazon's country director for Italy and Spain, Ms Mariangela Marseglia, declared herself "very happy" with the deal reached by finance ministers and central bankers of the G-7 wealthy states over the weekend.

She said it adopts "a uniform approach to the taxation of multinational companies (which) is what we have been trying to pursue for a long time".

Amazon has long supported countries working together on corporate taxation, she said, in order to reduce the risk of double taxation.

That may be an allusion to taxes imposed unilaterally by countries including France, Italy, Spain and Britain, which will fall away once a global agreement takes effect.

The reform now goes to a G-20 finance ministers meeting next month before moving to negotiations between 139 countries overseen by the Organisation for Economic Cooperation and Development.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on June 11, 2021, with the headline 'Amazon could sidestep proposed global tax rules with its low profit margin'. Subscribe