Tech giants like Amazon could be made to pay more tax after the G7 group of advanced economies reached a “historic” deal to make multinational companies pay more tax in the countries where they do business.
Finance ministers also agreed in principle to a global minimum corporate tax rate of 15% to avoid countries undercutting each other. At the moment, companies can set up local branches in countries that have relatively low corporate tax rates and declare profits there. This means they only pay the local rate of tax, even if the profits mainly come from sales made elsewhere. The practice is legal and commonly done.
The deal announced on Saturday (5th June) between the US, the UK, France, Germany, Canada, Italy and Japan, plus the EU, could see billions of dollars go to governments to pay off debts incurred during the coronavirus crisis. It will also put pressure on other countries to follow, including those meeting at the G20 next month, including China, Russia and Brazil.
Chancellor Rishi Sunak, who hosted the summit, said the agreement would make the global tax system "fit for the global digital age”, while US treasury secretary Janet Yellen said the "historic" agreement on a global minimum tax would "end the race to the bottom in corporate taxation and ensure fairness for the middle class and working people in the US around the world".
Meryl Halls, m.d at the Booksellers Association welcomed the news. She told The Bookseller: “Tech giants like Amazon have avoided paying significant levels of tax for years while reaping the benefits of an unfair retail landscape which puts bricks and mortar businesses at an enormous disadvantage. While there is still work to be done around business rates and other challenges for physical retailers, we hope that this G7 agreement signals a move towards a more balanced playing field post-pandemic.”
However, tax experts warned in the Guardian that Amazon may escape paying significantly more tax in its biggest markets. This is because a communique from G7 ministers said that they envisaged the first pillar of the deal would only apply on “profit exceeding a 10% margin for the largest and most profitable multinational enterprises”. While Amazon is one of the largest businesses in the world, it runs its online retail business at very low profit margins.
However, the US treasury secretary on Saturday said she expected Facebook and Amazon to be covered by the proposal: “It will include large profitable firms and those firms, I believe, will qualify by almost any definition,” she said.
A spokesperson for Amazon told The Bookseller: “We believe an Organisation for Economic Co-operation and Development-led process that creates a multilateral solution will help bring stability to the international tax system. The agreement by the G7 marks a welcome step forward in the effort to achieve this goal. We hope to see discussions continue to advance with the broader G20 and inclusive framework alliance.”