AWS, with $626m in federal contracts, pays ‘negligible’ tax: Report


Denham Sadler
National Affairs Editor

Amazon’s cloud business reported $600 million in revenue in Australia but paid only $16 million in tax in the 2020 financial year, with a global tax accountability organisation calling for greater transparency around its local operations.

A joint report by the Centre for International Corporate Tax Accountability and Research (CICTAR) and TaxWatch, released on Monday, looks at the importance of AWS to Amazon’s global business and its practice of “aggressive tax avoidance”.

The report investigates Australia as a case study in this, with AWS landing $626 million in contracts from the federal government but paying “negligible” tax in the country.

A spokesperson for Amazon said the company “pays all applicable” taxes in Australia.

CICTAR principal analyst Jason Ward said Amazon shouldn’t be rewarded with Commonwealth contracts, and the federal government should support local businesses instead.

“If there are qualified Australian-based companies that can do the work, why would we not give it to them and boost domestic industry jobs and tax versus handing over massive contracts to the likes of Amazon which has a global and domestic track record of tax avoidance,” Mr Ward told InnovationAus.com.

“The government has this huge purchasing power and it should be using that in order to leverage responsible behavior and broader transparency across the sector.”

CICTAR is backing a proposal at an Amazon shareholder meeting this week urging the company to report publicly on its tax payments and revenue in every country where it operates. This would help to better determine the work AWS is conducting in Australia and whether it is paying adequate taxes.

AWS Australia reported $600 million in total revenue in the 2020 financial year, with a taxable income of $55 million and paying $16 million in corporate tax, according to ATO corporate tax data.

Since 2017-18, AWS Australia’s total income has tripled but the amount of tax the company pays has only increased from $7 million to $16 million, according to the CICTAR report.

AWS Australia has a lucrative whole-of-government agreement with the federal government, worth $390 million and running to 2025. The company has also won a number of contracts with government departments and agencies, including to host data from the controversial COVIDSafe contact tracing app.

Several of the Australian government contracts with AWS are held directly with Amazon’s Delaware company, rather than its local subsidiaries. Mr Ward said this was previously the case with all of AWS’s contracts, but this is now more mixed.

“Assuming that a contract is signed with the Delaware entity, all of the payments for contractors are immediately going offshore and some small part of that goes back to the Australian entity,” Mr Ward said.

“The revenue and profits are taken offshore right off the bat. There’s such an ability for a company like Amazon to make payments and essentially pull money offshore.”

AWS’ original Australian whole-of-government agreement, signed in 2019, was with the company’s Seattle-based parent company rather than its local subsidiary. When this deal was extended earlier this year, this was switched to its Australian offshoot.

A spokesperson for Amazon defended the company’s tax record around the world.

“Amazon pays all applicable taxes in Australia and every country in which we operate,” the spokesperson told InnovationAus.com.

“Australian government agencies save costs from the day they sign up, due to the economies of scale achieved from the aggregated procurement agreement and are also supporting a community of smaller IT companies across Australia, that offer products and services that complement and help customers take full advantage of AWS.”

AWS controls more than a third of the world’s cloud computing market, and is the most profitable market segment for tech giant Amazon. While AWS only makes up 13 per cent of Amazon’s revenues, it makes up 74 per cent of its operating profit.

AWS has grown rapidly in recent years, particularly in public sectors around the world.

“Despite collecting public money through large and rapidly growing government IT contracts, Amazon continues to scorn paying its fair share of taxes. Amazon uses government contracts and subsidies to expand its empire and stifle competition, but it avoids tax obligations on the profits it makes,” Mr Ward said.

“The less tax paid by Amazon, means the responsibility to fund essential public services is shifted to its hundreds of millions of customers and growing global workforce.”

Amazon is headquartered in Washington state but incorporated in Delaware, and has a market cap of $US1.6 trillion. In 2021, AWS had net sales of $US62 billion, contributing nearly 75 per cent of Amazon’s overall profits.

In Australia, AWS was awarded a $39 million whole-of-government sourcing agreement with the federal government through the Digital Transformation Agency in 2019. This contract has now ballooned in value by 10 times to in three years to $390 million, and will run until 2025.

AWS Australia has also received $31 million from the tax office and more than $10 million from the Employment Department.

The company was also paid just under $710,000 to provide cloud hosting for contact tracing data from the COVIDSafe app in 2020, leading to concerns around data sovereignty.

More than $660 million of AWS Australia’s revenue was for sales to related parties and a further $24 million for sublease payments from related parties, and some of these are “questionable” the report said.

One of the most significant of these expenses was for a “cloud service fee” of more than $223 million, and $55 million for intangible assets.

“These types of large, typically offshore, related party transactions are common indicators of aggressive tax avoidance by multinationals,” the report said.

The report calls for greater transparency around the operation of Amazon and other tech giants in Australia.

“It is impossible to decipher from the Australian accounts what levels of service provided in Australia may have been paid directly to Amazon’s offshore entities with only some portion of the payment paid to the Australian entity,” it said.

“While there is sufficient evidence to raise many serious doubts and questions, there is insufficient evidence to properly analyse the complex multinational structure of Amazon’s global business, and its tax liabilities in specific jurisdictions.

“If governments are going to continue supporting and relying upon AWS for the provision of increasingly prevalent cloud computing services, it is crucial that those governments require transparency.”

A CICTAR report on another major government contractor last week found that consulting giant McKinsey paid “negligible” tax in Australia despite winning more than $145 million in federal government contracts in the last three years and reporting a total income of $850 million.

Do you know more? Contact James Riley via Email.

1 Comment
  1. Roger Buhlert 6 months ago
    Reply

    Hi Denham another great article as usual. It is getting to the point where any tender for any IT service must require the tenderer to submit a complete list of services to be provided line item by line item and there cost along with many other governance compliance processes introduced to ensure the work is done on time at the signed off and agreed cost and that taxation will be paid according to Australian Taxation standards for business

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