Amazon has made a killing from the pandemic. Founder Jeff Bezos, the richest person in the world, pocketed over €60 billion in additional wealth in 2020 alone. But as the coronavirus pandemic took hold last spring, Amazon staff called for warehouses to close, so that workers would not have to continue risking their health for the company. Despite sustained protest over the lack of protections, work continued, and Amazon's coffers filled like never before.
The Amazon example reveals the pitfalls of globalization. The unrelenting rise of multinational corporations has brought with it a concentration of wealth in the hands of the few, at the expense of the many. Global companies like Amazon now control about half of world trade. The 500 largest corporations in the world amass over €25 trillion in revenue annually – almost twice the EU’s gross domestic product - and their collective profits also go into the trillions.
How do they do it? Tax dodging plays a key role. The transactions and financial flows between affiliates of the same corporation are the building blocks of the tax avoidance schemes that enable such immense concentration of wealth. Corporations thus aggressively exploit loopholes based on differences between jurisdictions and their various inadequate tax regulations.
The coordinating centre of Amazon’s tax dodging operation is Luxembourg. Amazon subsidiaries there book massive operating losses from their non-American business dealings. In this way, Amazon collects loss carryforwards, which it turns into tax credits in the US, meaning the company is most likely paying little or no tax at all. The amount of loss carryforwards accumulated by 2020 goes beyond the total taxes payable in the group’s entire history. Since 2011, the company has made more untaxed profits than the total amount of taxes it has ever owed.
Every year, multinational corporations shift over €1.15 trillion in profits to tax havens, meaning global tax revenue losses of €204 billion. However, it is difficult to be precise about the tax evasion carried out by companies like Amazon. Scant information and their opacity in reporting make it almost impossible for the public to see how much tax such corporate behemoths ultimately pay. Our new study refers to this as ‘reporting arbitrage’: a deliberate method of obscuring aggressive tax dodging.
This study on the "Amazon Method" sheds light on the murky global tax strategy of the company. While existing studies have been limited to Amazon's domestic financial fiddling, the authors of this research use a new technique to examine its interrelationships worldwide. The corporate giant’s tax rip-off, what the authors call its “Tax Credit Arbitrage Scheme”, thus gets a properly detailed and comprehensive analysis.
Paradoxically, Amazon foreign operations are not only accumulating losses but also untaxed, unrepatriated profits. These profits appear to be held by Luxembourgish companies that serve both as managers of the group’s foreign treasury and cash flow, but also their European operations. These are supposed to be taxed in the US according to American rules. Instead, these profits are earmarked to be permanently reinvested in international business. In other words, they provide a growth engine and an unfair competitive advantage for Amazon's expansion.
Amazon is certainly not the only multinational to use these methods. The study provides us with valuable insights into the tax planning strategies of large corporations in general – and big tech in particular.
In 2015, the European Commission launched an investigation into Amazon, targeting the company’s illicit profit shifting. However, as we can see now, the narrow focus on profit shifting led us down the wrong track. The secret of Amazon's method lies not in the handling of profits but in the systematic production of losses.
In the midst of a costly pandemic, delivering tax justice and building a fair global system is more urgent than ever.
For a start, tax justice would mean hands-on political action by EU leaders to tackle tax dodging by companies such as Amazon, and a new, proper investigation by the European Commission. It means transparency and mandatory public country-by-country reporting for all large corporations and enforcing an effective global corporate minimum tax rate of 25% to curb international tax competition.
We have to understand that the whole is greater than its parts and apply “unitary taxation” to multinationals in order to undermine profit shifting and similar practices of tax dodging.
We need to anchor the concept of a “significant digital presence” in tax regulations to prevent non-taxation of digital business models. Finally, it requires a European excess profit tax to distribute the costs of the crissi fairly!
We cannot afford the toxic tax abuses of multinational corporations. Crisis profiteers like Amazon must pay their fair share back to the taxpayers they’ve been fleecing for years. Tax Amazon now!
Martin Schirdewan MEP, Co-President of The Left in the European Parliament
