Amazon may not be “trapped” by a new global deal designed to force large companies to pay more taxes in the countries where they operate, experts argue.
G7 finance ministers agreed last weekend to a two-pronged plan targeting online tech giants, with the first part setting a corporate tax base of “at least 15 percent.”
The second part ensures that large companies, especially those with a strong online presence, pay taxes in the countries where they operate and not just where they are headquartered.
However, experts have argued that the way the second part is drafted allows some companies to escape paying significantly more taxes.
Former Prime Minister Gordon Brown criticized the agreement, saying there are “so many loopholes” that need to be closed.
The G7’s tax plan, agreed after two days of talks in London and years of discussion, was hailed by Chancellor Rishi Sunak as a ‘historic’ moment
Experts have argued Amazon may not be ‘caught’ by much of the G7’s new tax plan
A communiqué from the G7 finance ministers, seen by Reuters, said: “We commit to reaching an equitable solution to the allocation of tax rights, with market countries being given tax rights on at least 20 percent of profits that have a margin of 10 percent for the most profitable multinational companies.’
Amazon has a market value of more than $1 trillion and had reported sales of nearly $386 billion in 2020.
The company had sales revenues of an estimated £38 billion in Europe in 2020, but paid no corporate income tax. However, the profit margin was reportedly 6.3 percent.
Mr Brown told the BBC Radio 4 Today program that the agreement was a step in the right direction but ‘there are so many loopholes’ and ‘we really haven’t solved the problem’.
He said: ‘The principle is correct that there should be a global minimum corporate tax rate… what happened is they stopped.
The tax rate is only 15 percent, while Britain will levy 25 percent and America 28 percent.
“So there’s still an incentive to stick with the tax haven that gives you the lowest rate.
“Companies like Amazon don’t seem to be covered by this and yet they make huge profits and of course the money goes back to the headquartered companies when it goes back to someone and that’s mainly in America.
“So it’s not a good deal for most of the world’s poorest countries that continue to lose billions over the years through tax avoidance and tax abuse.”
Sir Edward Troup, former permanent secretary at HMRC, wondered how important the deal would be for the UK.
He told the BBC that ‘in the UK we have to remember that this probably won’t mean much more money for us’.
He added: “Most of the companies affected by this are US-based multinationals and they are the ones who will pay more taxes. In the UK they may pay a little more, in the US and in other countries they will probably pay more.”
Some experts said the profit margin aspect of the plan means Amazon may not be subject to the second part of the G7’s tax strategy.
Paul Monaghan, chief executive of the Fair Tax Foundation, told The Guardian: “On the basis of the communiqué, Amazon will not be imprisoned.
“If there’s another layer of detail that suggests Amazon will be captured, that’s great, but it hasn’t emerged yet.”
Richard Murphy, visiting professor of accounting at Sheffield University Management School, told the paper the 10 percent threshold was “inappropriate,” adding: “This may turn out to be a false hope unless they get the details right.”
An Amazon spokesperson said: “We believe that an OECD-led process that creates a multilateral solution will contribute to stability in the international tax system. The G7 agreement marks a welcome step forward in the effort to achieve this goal.
“We hope that discussions with the wider G20 and the Inclusive Framework alliance continue.”
Mathias Cormann, the new OECD Secretary General, said the plan is a “big step forward” and he believes Amazon will be covered by it.
He told the BBC: ‘Our advice is certainly that a company like Amazon will be busted, but more detailed work still needs to be done.’
The G7’s tax plan, agreed after two days of talks in London and years of discussion, was hailed by Chancellor Rishi Sunak as a “historic” moment.
Mr Sunak said the changes will make the global tax system “fair so that the right companies pay the right taxes in the right places”.
Former Prime Minister Gordon Brown criticized the G7 deal, saying ‘there are so many loopholes’ that need to be closed
Sunak said the changes agreed upon by the G7 finance ministers, pictured at Lancaster House in London on June 5, will make the global tax system “fair so that the right companies pay the right taxes in the right places”.
The UK corporate tax rate is set to rise from 19 percent to 25 percent by 2023 on the basis of proposals announced by the Chancellor in the budget in March.
A spokeswoman for the Treasury Department explained the agreed tax reforms: “Under the first pillar of this historic agreement, the largest and most profitable multinationals will have to pay taxes in the countries where they operate – not just where they are headquartered.
The rules would apply to global companies with a profit margin of at least 10 percent — and 20 percent of any profit above the 10 percent margin would be reallocated and then taxed in the countries in which they operate.
“The fairer system will mean the UK will generate more tax revenue from large multinationals and help pay for public services here in the UK.”
Former UK deputy prime minister Sir Nick Clegg, who is now Facebook’s vice president for global affairs, said the social media giant acknowledged that the proposed tax reform could mean paying more taxes, and in different places.