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Will Amazon partially escape global corporate tax?

2021-06-17T14:32:11.861Z

VERIFICATION - Global reform plans to tax corporate profit margins exceeding 10%. However, the American giant is below this threshold, which Bruno Le Maire denounced, urging to find a solution to include it in the reform.



THE QUESTION.

It could be a real revolution in global taxation. On June 5, the G7 countries announced that they had reached an agreement on the establishment of a global minimum tax on companies. The objective: to fight against tax evasion by large companies, in particular Gafa. However, one of them could well escape one of the components of this vast reform as denounced by Bruno Le Maire. Four days after the announcement of the G7, the Minister of the Economy insisted on the need to do everything possible so that Amazon is

"in the field"

of the future tax on multinationals. France

"will fight for it to be there"

, he said at the microphone of RMC.

Read also: Agreement on a global minimum tax: 7 questions to understand

Two components make up the reform proposed by the G7 and negotiated for four years by the OECD with more than 135 countries.

The second (pillar 2) consists of the implementation of a worldwide corporate tax with a minimum rate of 15%.

The first component (pillar 1) aims to organize a better distribution of the tax cake.

The seven world powers have thus agreed to implement a tax of at least 20% on the so-called

"residual"

profit.

, that is, profits exceeding a 10% margin. This tax will then be distributed according to the places where the company really makes its profits. Another point defined by the G7: these new tax rules will not only apply to digital giants. In a first proposal, the OECD put forward the idea that all multinationals are concerned, beyond a turnover of 750 million dollars and having a direct interaction with the consumer. They still need to make profits exceeding 10%, which is not the case with Amazon. Despite a turnover of 386 billion dollars in 2020 and a market capitalization of 1.6 trillion, the firm of Jeff Bezos generated only a profit margin of 6.3%.

An unacceptable observation for the French Minister of the Economy who has made the taxation of Gafa his hobbyhorse. Will Amazon escape any aspect of corporate tax?

CHECKS.

How does Amazon manage to stay below the 10% threshold planned by the G7?

Currently, the calculation of its profits is made on the entire results of the company and not on those of each of its activities separately.

However, at Amazon, some such as delivery do not allow it to generate "excess profit".

Conversely, "

there is another activity, the 'cloud', on which Amazon makes very significant 'surplus profits'"

, points out Bruno Le Maire.

This is its AWS (Amazon Web Services) division launched 15 years ago and which generated half of the American giant's operating profit in the first quarter of 2021.

A segmentation difficult to define

According to the Minister of the Economy, "

the solution lies in one thing, the segmentation of Amazon's activities

"

.

"

I want us to segment Amazon's activities so that everything that is very profitable is indeed subject to this digital taxation and what, conversely, is less profitable is not subject to digital taxation

"

,

he explains. In other words, that each profitable part of Amazon itself pay a tax on the profits it has made when they exceed 10%. For example, the margin made by the AWS activity would exceed 30%.

This is indeed a solution that the OECD is looking at, according to

the Financial Times,

which specifies that other companies could be excluded from the new taxation such as Uber, Tesla, Twitter and Snapchat. Asked about BFM, Pascal Saint-Amans the director of the Center for Tax Policy and Administration of the OECD refuted any possibility for Amazon to escape part of the reform, denouncing

"a false debate".

According to him, "

in the agreement (

negotiated by the OECD)

, it was planned that the profits of the cloud would be part of the solution and would be distributed among the States

".

“This

first component risks rather creating a significant administrative burden

,” warns a tax specialist.

We can set up segmentation, but this will require companies to follow extremely fine accounting for each of their activities.

Especially since the determination of profit in companies is already not a simple exercise

”, he adds, specifying that this process will also constitute an additional difficulty for the tax authorities.

A low-paying component for the States

If the integration of a segmentation of activities in the first part of the global corporate tax is being studied, it is not a priority for many players in the sector.

The first part of the reform will indeed pay little compared to the second which establishes a world tax of at least 15%, especially for France.

With this different distribution, it should collect more taxes from the Gafa but less from other French groups like LVMH which will pay more taxes to other countries in which they have markets.

Read also: Global tax: the obstacle of the US Senate

“Pillar 1 is relatively complex and it is difficult to know if it will be effective. But even if today the parameters defined are such that it will not bring in much, it potentially opens the door to something bigger ”

, nevertheless indicates Philippe Martin, Deputy Chairman of the Council of Economic Analysis (CAE) and professor of the economics department at Science po

. “But we must not get the wrong fight,” he

adds.

It is pillar two which reduces the tax optimization of multinationals in tax havens and increases tax revenues in France as in other countries ”

.

Globally, the reform wanted by the G7 could bring an annual increase in revenue to 100 billion dollars, equivalent to 4% of the amount of corporate tax, according to the OECD.

This gain would amount to 4 billion euros per year for France according to the European Tax Observatory.

For its part, Amazon described the G7 agreement as a

"welcome step forward"

.

"We believe that an OECD-led process that creates a multilateral solution will help bring stability to the international tax system

,

"

the company said simply, as quoted by the

FT

.

In summary, a solution, that of the segmentation of the activities of multinationals targeted by the global corporate tax, exists to prevent Amazon from going through the first pillar of this reform as Bruno Le Maire wishes. However, this option, which still requires adjustments, seems more symbolic than lucrative. An issue, moreover, well understood by the OECD, which is considering its implementation.

"That does not return a good image if Amazon was passing through and it is important that France raises its voice

"

,

abounds Quentin Parrinello, Head of Tax Justice Advocacy and inequality at Oxfam. "

But we must also question the political strategy. France is scarce for a company on a shutter instead of supporting a movement of countries according to which a world taxation of 15% is not sufficient ”, he

denounces

.

A first rate of 21% had in fact been proposed before being revised downwards in the final G7 agreement. Several voices have since been raised to demand a more ambitious tax rate.


Source: lefigaro

All business articles on 2021-06-17

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