As Biden sits down with G-7 leaders to discuss the future of the free world, one item certain to make his agenda will be the U.S.’s bold new plan for a “global tax.”
Finance ministers from G7 countries have agreed to a proposed global minimum tax rate of 15%, as well as other measures aimed at making big tech companies pay more. This means, large multinational companies may wind up paying taxes in countries where they make substantial sales, as opposed to the countries they are headquartered in.
The move aims to level the playing field for companies — and COUNTRIES, and is expected to have a substantial impact on the industry.
UK Chancellor of the Exchequer Rishi Sunak, said that the proposal was “fit for the global digital age” while, German finance minister Olaf Scholz said the deal was “very good news for tax justice and solidarity and bad news for tax havens” — but is it?
By limiting competition, countries like France and the U.S. will be under less pressure to decrease their tax rates, which could hurt economic growth in the long run.
Switzerland and Ireland have already announced their reservations over the system. Indeed, the Irish government is expected to oppose the deal, as it could threaten Ireland’s competitiveness, and cause losses of at least 2bn Euros a year to the country.
Instead of creating global tax “equality,” the move will establish a dangerous economic precedent on worldwide global taxation–while still allowing one of the biggest companies in the world to pay little tax.
Meanwhile, the tech giant Amazon is unlikely to see its taxes increase.
As G7 leaders celebrated their global tax agenda, a key detail was left out; their minimum tax of 15% might not apply to Amazon…apparently, Amazon is not considered profitable enough.
Indeed, G7 ministers stated that the global minimum tax would apply to “profit exceeding a 10% margin” meaning Amazon may not make the cut.
Amazon is known for reinvesting all its profits in expansion and growth, leaving it with very small effective rate of profit, well below 10%.
In 2020, Amazon was valued at $1.6tn, with $386bn in sales. Its profit margin was at a mere 6.3%.
Amazon has previously defended its tax policy, stating that it pays all the taxes it is legally required to pay.
“Corporate tax is based on profits, not revenues, and our profits have remained low given our heavy investments and the fact that retail is a highly competitive, low margin business,” Amazon spokesperson said.
Clearly, key people in Washington share Amazon’s view.
From 2012 to 2019, Amazon has increased its spending on lobbying by 460%, more than its competitors. According to OpenSecrets.org, Amazon has spent $5,060,000 on lobbying in the first quarter of 2021.
Amazon’s lobbying efforts could be paying off.