Governments use creative accounting to tax Amazon
Jeff Bezos’ business is so powerful that the world’s most powerful countries came together over the weekend to figure out how to take it down a notch or two.
The G7 tax deal aims to ensure that big tech groups pay a bit more tax in the countries where they operate. The world’s largest companies are targeted by the new proposal if they have pre-tax profit margins above 10%. Problem: Amazon doesn’t.
Determined to trap the company, officials found a workaround. While Amazon’s retail business has a low single-digit margin in some markets and is losing money in others, its Amazon Web Services cloud business – which allows millions of customers to outsource of IT tasks – has an operating margin of almost 30%. Policymakers therefore plan to treat cloud computing units as separate companies for tax purposes.
“As a tax lawyer, it’s fantastic! Said the one who followed the process closely and anticipated many complicated rules to try to enforce an unprecedented “irrational” concept he could think of.
The principle is awkward. Amazon has favored growth to the detriment of its results. It’s supposed to be what governments want businesses to do.
As Brad Stone writes in his new book on the business, Amazon unrelated, “rather than accumulating record amounts of cash and reporting it in his income statement… Bezos invested Amazon’s winnings like a mad gambler at the craps table in Las Vegas.”
The group is also sanctioned for transparency. If he had not chosen to reveal the benefits of AWS six years ago, the cunning of policymakers would be impossible.
Until April 2015, most investors believed that AWS had lost money. But then Amazon lifted the veil. As it turned out, no one outside of the company really knew what it was about. It was not a barely profitable online store. It was a barely profitable online store with a very profitable cloud computing business inside.
It proved a dramatic shift in the perception of Wall Street from Amazon. The next day, shares jumped 16%, taking the company above a valuation of $ 200 billion for the first time, injecting rocket fuel for the climb to current highs of $ 1.7 billion. dollars.
The benefit of transparency was easy to quantify. The potential cost of this tax proposal is more difficult: the details published are meager. People involved in the talks have informed a bit more. But negotiations on the finer points will continue and the plan could easily derail completely.
Amazon itself, meanwhile, has remained silent on details and has expressed support for the global process. It might sound strange, but this particular tax could end up being a relatively low bill. TaxWatch, a lobby group, calculated that Amazon and other big tech companies would pay less in the UK with the proposal than with a competing digital sales tax.
The proposal is not really suitable for admirers or opponents of Amazon. If they really think its dominance is a problem, then governments should give up their fiscal tools and use their antitrust weapons.