Amazon Will Be Covered If International Tax Deal Ever Becomes Law

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by Tyler Durden
Monday, Jun 07, 2021 - 04:43 PM

Amazon shares tumbled to their lowest levels of the session on Monday amid reports that Amazon would be included in a G-7 deal cemented over the weekend to retool the minimum corporate tax in some of the world's wealthiest nations (though a US-led movement to force the proposal down the throats of reluctant Ireland, Singapore and other low-tax nations remains very much in doubt).

As we learned over the weekend via a communique from G-7 ministers, a pillar of the deal envisaged that the tax would apply on "profit exceeding a 10% margin for the largest and most profitable multinational enterprises." Thanks to Amazon's low-margin e-commerce business, the firm doesn't technically meet that cutoff, as the Guardian pointed out in a story published earlier today that quoted a bevy of experts who warned that Amazon might be excluded from the new tax regime if some special arrangement weren't included.

Amazon is one of the largest businesses in the world, with a market value of $1.6tn (£1.1tn) and sales of $386bn in 2020. A Luxembourg subsidiary paid zero corporation tax in 2020 on sales income from across Europe of €44bn (£38bn), making Amazon a prominent target for politicians campaigning for changes to the global tax system.

However, its profit margin in 2020 was only 6.3%. It runs its online retail business at very low profit margins, partly because it reinvests heavily, and partly to gain market share.

Of course, with the Democrats in the driver's seat, it's hard to imagine that Bernie Sanders or Elizabeth Warren would allow Amazon, a common target for their populist attacks, to escape the greatest international corporate tax overhaul in 100 years. As Richard Murphy, visiting professor of accounting at the Sheffield University management school, argued to the Guardian, the 10% profits threshold was "inappropriate" because of different business models for different companies. He added that current approaches to reporting profits in each country were "easily gamed." "This could turn out to be a false hope unless they get the detail right," he said.

On Monday afternoon, Bloomberg published a report citing two anonymous sources close to the talks that Amazon will be subject to new taxes under the deal, though BBG added that the "particulars" of how this will be accomplished are still being discussed.

But from where things currently stand, it looks like  negotiators are working on a mechanism that will hive off Amazon's more-profitable businesses (like its AWS cloud computing business) rather than the whole company, whose margins are weighed down by heavy investment and thin margins from its e-commerce and Prime services.

The company's shares dropped on the news:

As for whether the deal will ever become international law, well, that remains to be seen.