Taxes: Does Amazon no longer have to pay despite reform?

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Campaign for higher taxation of the super-rich ("Tax me if you can") with the likeness of Amazon founder Jeff Bezos in Washington

Photo: JONATHAN ERNST / REUTERS

It is rare for German finance ministers to address individual companies in public.

But incumbent Olaf Scholz is currently also a candidate for chancellor of the SPD - and is therefore a little more offensive.

At the beginning of the week, the party executive published a picture of Scholz along with the words "Sorry Alexa, Amazon will finally pay taxes globally."

Background to the self-confident announcement: At the weekend, the G7 countries had supported the concept of an international tax reform for companies. The decisive element is a minimum tax that Scholz proposed three years ago. Its aim is to curb the worldwide shift in profits that multinational companies like Amazon have used to minimize their tax payments.

Even if the G7 decision marks a breakthrough, Scholz's jubilation could prove premature. On the one hand, the emerging countries still have to be convinced of the reform before a G20 summit in early July. Difficult negotiations are emerging here, especially with China. On the other hand, it is unclear whether a decisive part of the reform applies to the US trade giant at all. "It is quite possible that Amazon will not be recorded," says Dominika Langenmayr, tax expert at the Catholic University of Eichstätt.

The minimum tax is only one of two pillars of the planned reform under the leadership of the industrialized countries organization OECD. The other is a new levy that around a hundred companies with at least $ 20 billion in annual sales are expected to pay worldwide. How the income from this tax is distributed depends on sales in individual countries - and not, as has been the case up to now, on the location of the business premises. According to the G7 resolution, the market states, i.e. those countries in which the sales are made, should receive at least a fifth of those profits that exceed a return of ten percent.

"You can tell that it is a heavily negotiated compromise," says economist Langenmayr of the formula that was created as an alternative to pure digital taxes. Such taxes, which are mostly based on sales, had already been introduced by countries like France single-handedly, annoying the USA, which suspected an attack on the domestic digital industry.

With the current formula, however, Amazon might no longer be a member of the club of 100 particularly taxed corporations. Because the US company made a staggering 386 billion dollars in sales last year. But its return was only 6.3 percent - that is, below the threshold now set by the G7 countries. Does Amazon, whose founder Jeff Bezos came to an average tax rate of 0.98 percent over several years according to new disclosures, no longer have to pay in the end?

It won't quite get that far.

Because the planned minimum tax, i.e. the first pillar, would apply to the group either way.

"Amazon definitely has to pay more taxes on profits," says Langenmayr.

"But most of them end up in the USA, not in Europe." The reason: If Amazon pays less than the globally agreed minimum tax rate somewhere abroad, additional payments can be made in the country of the company's headquarters - and that is in Seattle.

So that Europeans also get more taxes than before from Amazon, they are likely to insist on the so-called segmentation approach.

Individual parts of a company can be taxed separately if they exceed the thresholds of turnover and profitability.

At Amazon, this applies to business with other retailers who use the platform for their sales.

The segmentation approach should only be used in exceptional cases.

However, it gives an idea of ​​how difficult it will be to negotiate technical details of the new tax rules.

Corporations are already calculating their profits with the help of tax firms and consulting firms.

After reaching an agreement on the global tax reform, they should have a particular eye on the new thresholds.

Is 15 percent enough?

There are still many unanswered questions about the minimum tax.

In contrast to other countries, Estonia does not tax profits until they are distributed.

How far in advance can such taxation be taken into account for the minimum tax?

The negotiators will have to clarify that too.

Last but not least, it is unclear how high the minimum tax rate will ultimately be.

The G7 ministers are calling for 15 percent.

This puts them well below the 21 percent that US President Biden has targeted as the national minimum tax, and only slightly above the 12.5 percent that the European low-tax country Ireland is currently levying.

Non-governmental organizations therefore criticized the G7 decision as inadequate.

However, the 15 percent should relate to the effective taxation - i.e. what companies actually transfer to the tax authorities in the end.

In Ireland and many other countries, this rate has so far been far below the nominal rate due to many special rules.

"I believe that it is good to set the minimum tax rate lower," says expert Langenmayr.

"Because many countries come from zero percent."