Western governments plotting a tax crackdown on multinationals could target Amazon’s cloud computing arm, despite the company appearing to fall outside the scope of a planned minimum corporation tax.
Reports had suggested that Amazon could avoid the minimum tax rate, since its company-wide profit margins are typically below the 10pc identified by the agreement reached this weekend by G7 finance ministers.
However, the OECD, which is at the centre of the plans, is considering treating Amazon Web Services, its cloud computing division, as a separate entity, according to the Financial Times.
AWS, which rents out computing power and hosting to thousands of customers such as Netflix and Snapchat, enjoys much higher margins than the company as a whole.
It has had an operating margin of 30pc in the last 12 months, compared to 6.6pc for Amazon as a whole, 4.2pc for its North American retail operation, and 2pc for its International retail business. AWS has made $14.6bn (£10.3bn) in operating profits in the last 12 months, more than its entire retail business.
Amazon profit margins by division
Amazon has traditionally reinvested profits from its retail business on expansion and new technologies, but the hugely profitable AWS business has led to more immediate rewards.
Janet Yellen, the US Treasury Secretary, indicated at the weekend that Amazon would be affected by the proposed changes, despite a communique saying that taxing rights would apply to profits above a 10pc margin.
Amazon has said it welcomes international agreements on taxes, but did not comment on whether it believed AWS would be affected.
“We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system,” a spokesman said over the weekend. “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.”
The proposed minimum corporation tax rate of 15pc, designed to avoid a “race to the bottom” between countries, would allow governments to “top up” taxes if they shift income to a country with a lower rate.