Business groups and conservatives call for changes to Canada’s tax system after Amazon findings

Signage at an Amazon fulfillment center in Ottawa on July 11.Sean Kilpatrick/The Canadian Press

Federal Conservatives and industry groups representing Canada’s small business and tech sector are calling for changes to the tax system that for years have Inc. AMZN-Q to account for its Canadian retail profits in the United States, thereby minimizing its corporate tax exposure here.

The Globe and Mail revealed this tax strategy last week as part of an investigation into Amazon’s activities and influence in Canada, relying on documents that governed employee behavior during the climb. company at the top of the nation’s digital retail industry.

While warehouse operations were handled by a company registered in Canada, the documents describe a system in which staff from Amazon’s Seattle headquarters oversaw that country’s retail operations, with strict rules to limit Amazon business trips and discussions.

Amazon described the information in the documents as an “outdated representation” of its business structure in an email to The Globe this month, but did not deny having used the strategy before. The company said it pays all taxes required by Canadian governments. Nothing in the documents advised Amazon, its affiliates, or its employees to engage in anything illegal, such as tax evasion, and the documents contain no evidence of illegal behavior.

Tax minimization strategies are common in the corporate world, but the results revealed the extent to which large multinationals can minimize the taxation of their profits in countries where they operate but do not have a head office. This has helped create what the Conservative critic for National Revenue and Canadian industry groups call unequal playing fields, which disproportionately favor multinationals headquartered elsewhere and greater ways to structure their operations in such a way as to minimize the taxation of corporate profits.

“The Canada Revenue Agency continues to aggressively go after small businesses, while ignoring big US tech companies like Amazon,” Jake Stewart, Conservative MP for Miramichi – Grand Lake, NB, said in a statement sent by e-mail. “The government and the CRA should take immediate action to close this loophole in the tax system and work with our international partners to crack it down,” he added.

Dan Kelly, president and CEO of the Canadian Federation of Independent Business (CFIB), said his group had many of the same concerns. CFIB represents more than 95,000 Canadian small and medium-sized businesses.

“For years, small independent businesses have feared that large multinationals could use complex corporate structures to minimize their taxes in Canada,” he said. “Without Ottawa’s vigilance, these giant corporations may have an unfair advantage over smaller businesses.

Justin Trudeau’s Liberal government has warmly welcomed American tech giants to Canada, especially during its first term, much to the frustration of many high-growth Canadian tech companies. Mr. Trudeau has often met with high-level CEOs such as Apple Inc.’s Tim Cook, former Alphabet Inc. Chairman Eric Schmidt and, in 2018, Jeff Bezos, Founder of Amazon.

Although the government has since moved away from Big Tech giants, national industry groups such as the Canadian Council of Innovators have long expressed frustration with what they see as preferential treatment of foreign multinationals at the expense of economic development. national.

“This case represents an extreme example, and one that should be investigated by policymakers,” Benjamin Bergen, chairman of the council, said in an email. “It is troubling that the Canadian tax system gives more favorable treatment to the profits of foreign corporations than to domestic corporations.

Amazon documents recommended restrictions on business travel for retail employees, who were instructed not to spend more than two consecutive weeks or more than 182 days a year in Canada, otherwise profits from operations Amazon’s retail sales in this country could be taxed here. The company also instructed staff not to have a dedicated workspace in Canada or to ask anyone here to order an Amazon product or sign up for its services while those employees were on Canadian soil.

“As Amazon continues to invest in Canada, we are making changes to our corporate structure to ensure we are in the best position to serve our local customers and selling partners, including our nearly 40,000 employees. Canadians and the nearly 40,000 Canadian third-party sellers who sell their products in Amazon stores,” company spokeswoman Kristin Gable told The Globe via email this month. “It’s standard practice for businesses of all sizes. Our tax payments reflect our investments in Canada.

Asked over the weekend if the federal government would take further action regarding the taxation of multinational profits, Adrienne Vaupshas, ​​spokeswoman for Finance Minister Chrystia Freeland, listed a variety of initiatives that Ottawa already had. announced. These included funding for the Canada Revenue Agency to “expand audits of large entities and non-residents engaged in aggressive tax planning” and launch a public, searchable registry of beneficial owners by the end of 2023.

“Canada strongly supports international efforts to end the corporate race to the bottom and to ensure that all companies, including the world’s largest corporations, pay their fair share,” said Ms. Vaupshas.

A spokeswoman for National Revenue Minister Diane Lebouthillier did not respond to a request for comment over the weekend. The Canada Revenue Agency (CRA) declined an interview request, instead emailing a statement Sunday night that reiterated its past comments to The Globe about taxing Amazon and other multinational tech companies. The CRA said it is required by law to keep taxpayer information secret. It also maintains that all resident corporations must file an annual return if they carried on business in that country, realized a taxable capital gain, or sold taxable Canadian property, even if they owe the agency nothing.

Governments around the world have long sought to find a way to tax the profits of multinational corporations in the markets in which they operate. The Organization for Economic Co-operation and Development has spent almost a decade trying to develop a uniform global corporate tax system. While the government has said it supports these measures, the details are not finalized and have already come under criticism. Even the OECD has said Amazon’s retail margins are likely too low to qualify for the system as currently proposed.

It is, however, possible that individual countries will try to force multinationals to refund taxes after investigating their corporate structures. In 2009, Japanese tax authorities ordered Amazon to pay the equivalent of US$119 million in back taxes from 2003 to 2005 for sales in the country that passed through a US subsidiary.

It’s unclear if Amazon paid that amount – the company didn’t respond when asked by the Globe if it did – but Japanese media later reported that the company was paying nearly $140 million. dollars in annual taxes at the end of the last decade.

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