Will The G7 Summit See Amazon Finally Pay its Fair Share?
As Benjamin Franklin once famously said: “In this world, nothing is certain except for death and taxes.” But, lately, it seems as though taxes might be replaced by something else. We’ve probably all seen the headlines about Amazon (and the tech giants) not paying their fair share of tax. But, by now, it seems to be the same old story each year: big companies make millions – more often than not, billions – in profits but manage to pay a lower rate of tax than a moderately successful small business. But, will the recent G7 summit soon make that a thing of the past?
In 2020, Amazon saw sales income of up to €44bn (£37.7bn) in Europe. But, they declared a loss of €1.2bn (£1.03bn). Resultantly, they paid no corporation tax. But, recent talks of an international tax agreement to tackle abuse by the tech companies look to be making progress.
What did the G7 agree to?
There was agreement on two major points. Firstly, that countries can tax the companies on revenue generated in that country rather than where the firm is located for tax purposes. This means that the UK Government could tax Amazon on its UK revenue, even though it is based in Luxembourg.
Secondly, the G7 committed to a global minimum tax rate of ‘at least 15%.’ While lower than the 21% suggested by President Biden, the inclusion of “at least” in the G7 deal means the rate could be negotiated higher.
Which companies would it apply to?
As alluded to above, the apparent targets are the primary game players – so Amazon and the tech giants! But, the plans aren’t limited to just those few. Plans for a global corporation tax rate could well capture up to 8,000 multinationals. So, oil giants like BP and Shell and banks such as HSBC, Barclays and Santander can all expect changes in the not too distant future.
How much would it raise?
Last October, the OECD estimated that the proposals could raise tax revenues of $81bn (£58bn). Meanwhile, the Institute for Public Policy Research suggests that the UK’s portion (albeit from the 21% tax rate championed by President Biden) could be up to £14.7bn annually.
Could the tax be avoided?
Now to the question on everyone’s mind! In brief, the simple answer is ‘yes.’ Countries such as Ireland, Hungary and Cyprus all have corporation taxes lower than 15%. But, at the G7 summit, leaders welcomed the notion that their combined economic might could bring such countries into line. And they stand a good chance of doing so, especially if the minimum rate is agreed with the G20, which includes China, Russia and India.
In theory, therefore, the deal appears both doable and likely to raise significant revenues. But like all international agreements, there will be a lot of talking, and it won’t be done quickly. It will also need to gain regulatory approval in the relevant countries, giving ample time for delay and lobbying. Nevertheless, most experts believe that ultimately there will be some form of agreement – but don’t expect it to happen in the next 12 months.
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Written by Chris Page
Chris is an experienced financial service professional who joined the business in 2013, as a result of his hard work and dedication he was made a director of the firm late 2014.