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What G-7 Global Tax Plan Could Mean for Amazon Retail

Amazon could be affected by the G-7’s groundbreaking global tax plan.

Over the weekend, G-7 finance ministers from Canada, France, Germany, Italy, Japan, the U.K. and the U.S. “reached a historic agreement to reform the global tax system, to make it fit for the global digital age and crucially to make sure that it’s fair so that the right companies pay the right tax in the right places,” U.K. finance minister Rishi Sunak said in a video broadcast from London on Saturday.

The move seeks to put an end to multinational corporations favoring low-rate nations to avoid pricey tax bills. U.S. Treasury Secretary Janet Yellen, in tandem with her finance peers, also endorsed proposals requiring companies like American tech giants to pay additional taxes—when profits exceed a 10 percent margin—in countries where they generate sales but have a limited physical footprint.

Big tech leaders like Google, Facebook and Amazon are reportedly open to the proposed minimum tax, according to CNBC, though experts have called into question whether the Seattle behemoth would be covered as the tax proposal is currently written.

That’s because Amazon operates so many different businesses, some hugely profitable—like the Amazon Web Services (AWS) cloud computing division, which ended 2020 with over $13.5 billion in operating profits for a 30 percent margin, and 63 percent of the company’s total profits.

How Amazon might be looped in could be through an approach known as “segmentation,” which would require the profitable components of a business to be taxed separately as if they were standalone entities. That would mean that the online retail platform of Amazon could escape taxation, given that it reinvests into the marketplace and the platform’s profits are below the 10 percent margin rate. Segmentation would treat AWS as a separate entity, allowing European nations where the cloud computing arm has a sizable presence to capture a higher percentage of taxes owed.

For now, whether Amazon’s AWS would be separated out for tax purposes is still up in the air. Further discussions could depend on the G-20 talks with nations including Australia, Brazil, China, the European Union, India, Mexico, Russia and South Africa, which are scheduled to meet in Italy in July. France wants a tax rate higher than 15 percent, while the U.S. is pushing for the elimination of digital services taxes.

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Washington on June 2 imposed tariffs on certain goods from Austria, India, Italy, Spain, Turkey and the U.K., which have already adopted a digital service tax, but suspended them for six months in light of the G-7 and G-20 talks.

While the G-7 nations came up with a working framework over a global minimum tax, it still has to figure out how the tax liability for each tech giant is allocated.

For now, the countries that have implemented a digital services tax are expected to leave them in place. Whether they get eliminated at all will depend on when the global tax agreement and resulting implementation framework gets completed.