Amazon: destroyer of high streets, dehumanising employer, doorbell voyeur. And incredibly useful supplier of goods, from the essential to the frivolous.
So mighty is Jeff Bezos’s company that the world’s most powerful countries convened last weekend to work out how to take it down a peg or two.
The G7 tax deal aims to ensure that big tech groups pay a bit more tax in the countries where they operate. The largest global companies are caught by the new proposal if they have pre-tax profit margins above 10 per cent. Problem: Amazon doesn’t.
Determined to snare the company, officials have come up with a workaround. While Amazon’s retail business has a low single-digit margin in some markets and loses money in others, its cloud business Amazon Web Services — which allows millions of customers to outsource computing tasks — has an operating margin of almost 30 per cent. So policymakers plan to treat cloud computing units as separate companies for the purpose of the tax.
“As a tax lawyer, it’s fantastic!” said one who was tracking the process closely and anticipated plenty of complicated rules to try to enforce an “irrational” concept with no precedent he could think of.
The principle is awkward. Amazon has prioritised growth at the expense of its bottom line. That is supposed to be what governments want companies to do.
As Brad Stone writes in his new book on the company, Amazon Unbound, “rather than accumulating record amounts of cash and reporting it on its income statement . . . Bezos invested Amazon’s winnings like a crazed gambler at the craps table in Las Vegas”.
The group is also being punished for transparency. If it had not chosen to reveal AWS profits six years ago, policymakers’ ruse would be impossible.
Until April 2015, most investors believed AWS lost money. But then Amazon lifted the veil. It turned out that no one outside the company really knew what it was. It was not a barely profitable online store. It was a barely profitable online store with a highly profitable cloud computing business inside.
It proved a step change in Wall Street’s perception of Amazon. The following day the shares leapt 16 per cent, taking the company above a $200bn valuation for the first time, an injection of rocket fuel for the climb towards today’s $1.7tn heights.
The transparency benefit was easy to quantify. The potential cost from this tax proposal is harder: the published details are meagre. People involved with the talks have briefed a bit more. But the negotiations over the finer points will continue and the plan could easily be derailed altogether.
Amazon itself, meanwhile, has stayed quiet on the specifics and has expressed support for the global process. That might seem odd but this peculiar tax might end up as a relatively low bill. TaxWatch, a pressure group, has calculated Amazon and other big tech companies would pay less in the UK under this proposal than under a rival digital sales tax.
The proposal does not really suit Amazon’s admirers or adversaries. If they really think its dominance is a problem, then governments should put down their tax tools and reach for their antitrust weapons.