Will Amazon shares remain bearish after global G7 taxation deal?
The G7 – the collective of the world’s most advanced economies – backed a ‘historic’ deal to unify their approach to the taxation of multinationals. How will this coordinated global action on tax affect the Amazon share price?
- Global minimum corporation tax rate set at 15%
- Deal applies to multinationals with profits exceeding a 10% margin
- Zero corporation tax paid on £38bn European sales in 2020
- Ready to trade the Amazon share price? Open an account today
How will Amazon shares react to G7 tax deal?
On Saturday, 5 June, the G7 approved a deal to level the taxation playing field for multinational companies, enforcing companies to pay more tax in countries where they are providing services, as opposed to where they declare their profits.
The UK’s Chancellor of the Exchequer, Rishi Sunak, believes the deal will ensure the world has a tax system that is ‘fit for the global digital age’ and bring tax justice to national economies heavily impacted by the Covid-19 pandemic. Many analysts believe this deal will affect the likes of Amazon and Facebook most.
Amazon posted online sales totalling more than £272bn in 2020. Its subsidiary based in the tax haven of Luxembourg did not pay a penny in corporation tax on sales registered across Europe last year. Hence the targeting of Amazon and Facebook – which adopts similar tax practices – by politicians for a fairer global tax system.
Chris Beauchamp, analyst, IG, anticipates that the latest developments on a global tax system will do little to spark confidence in the Amazon share price after a ‘dismal few months’ in the markets.
‘Amazon’s stock has gone nowhere since it first hit $3600 per share back in September,’ said Beauchamp.
‘Support has been found in the area of $2900 several times since, but, on the flipside, gains have stalled at $3600 more than once. Some comfort can be derived from the fact that $3150 has formed short-term support this month, but even here gains have stalled at $3300.
‘It looks like the shares will continue to drift, digesting the huge gains made from March - September 2020, with little in the way of a big catalyst to drive a renewed rally in the price.’
Have tax experts spotted a loophole for Amazon to exploit?
Another reason why Amazon shares may not be overly affected by the G7 deal is a potential loophole that could still let the e-commerce behemoth off the hook. The first pillar of the deal is expected to apply solely to multinationals posting profit margins above 10%.
Despite a market value of £1.1 trillion and Q1 2021 net sales rising considerably, Amazon’s annual profit margins are thinner than expected. Amazon’s e-commerce platform operates at low-profit margins, largely due to its substantial investments and its push for market share. In 2020, Amazon’s profit margin ran at just 6.3%.
Paul Monaghan, CEO, Fair Tax Foundation, says that under the first pillar of the G7 deal Amazon ‘is not captured’. Monaghan says that an additional ‘layer of detail’ intimating that Amazon will be included in this deal ‘hasn’t emerged yet’.
Could the recent MGM acquisition bring fresh momentum to the Amazon share price?
Based on market sentiment alone, it would appear Amazon investors are somewhat lukewarm over the e-commerce giant’s recent £6bn purchase of Hollywood studio MGM. The acquisition of the studio that produced the James Bond and Rocky franchises is a strategic move by Amazon to strengthen its global streaming arm. However, the Amazon share price fell from $3265 to $3230 per share as the news broke of the merger.
Looking at the longer term, the deal is almost certain to add a new string to the Amazon Prime bow. The MGM purchase gives Amazon Prime video subscribers new access to up to 17,000 television episodes and more than 4,000 movies – adding even greater value to Prime subscriptions that continue to outperform Disney+ two-to-one.
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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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