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As Amazon became Canada’s largest online retailer, the Seattle-based company crafted a strategy that would limit how much of its profits were taxed by the federal government

Photo illustration by The Globe and Mail/iStockphoto

Amazon.com Inc. used a complex web of subsidiaries for years as part of a corporate strategy to limit taxable profits in Canada, according to documents that governed employee behaviour at the company during its rise to dominance as the country’s largest online retailer.

The documents are a playbook detailing steps staff at Amazon’s head office in Seattle needed to take to ensure profits from retail sales in Canada were booked in the United States. The materials, which The Globe and Mail reviewed as part of an investigation into the company’s activities and influence in Canada, offer insight into how Big Tech maximizes penetration of new markets while minimizing exposure to foreign taxation. The documents have never been disclosed to the public or shareholders.

A version of the strategy was being used within the past five years, and stretched back many years before that. It involved a corporate structure in which Amazon’s warehouse network in Canada was operated by a British Columbia-registered company called Amazon Canada Fulfillment Services. Canadian retail operations, however, were run separately through a subsidiary at the head office in Seattle.

The materials warned those Seattle-based retail employees to be cautious when working here and to remain vigilant even when discussing the work they performed. All books and records were to be kept in the corporate head office, according to the documents, and no company directors and officers were to live in Canada.

The company recommended restrictions on corporate travel for employees, who were instructed not to spend more than two consecutive weeks or more than 182 days a year in Canada, the documents allege, or else profit from Amazon’s operations in this country might be taxed here. The company also instructed staff not to have 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.

There is nothing in the materials that counsels Amazon or its subsidiaries to engage in anything illegal, such as tax evasion, nor do the documents contain any evidence that employees did. Nevertheless, given the scale and dominance of Amazon in the Canadian market, the strategy could effectively shield the retail operations of one of the country’s largest merchants from having its profits taxed by the federal government.

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In responses to The Globe, the company said the information in the documents offered an outdated portrayal of Amazon’s structure in Canada. The company did not deny having previously used the strategy, but said Amazon complied with tax laws and contributed to economic growth.

“The tax laws in Canada are designed to encourage companies to invest and invent, and we’ve done just that – investing more than $6-billion in the country in 2020 alone,” said Kristin Gable, a senior manager of corporate communications for the company in Canada, in an e-mail. “As we do everywhere we operate, we pay all taxes owed under the law, and we also generate significant additional tax contributions from others through our job creation, investment and ongoing operations.”

Profit shifting and tax minimization are neither rare nor novel. Statistics Canada has conducted two studies in recent years that suggest they are, in fact, widespread. In 2019, the Parliamentary Budget Office estimated that multinationals underreported $4.2-billion in taxable income here in 2015 alone. And just last month, the Canada Revenue Agency (CRA) said the country loses as much as $23.4-billion a year in uncollected taxes, with the amount from large corporations widening from 2014 to 2018 as corporate revenues grew. None of these reports suggest Amazon contributes to the problem, though it is one of the largest multinationals operating in Canada.

Governments and lawmakers around the world have criticized multinationals for aggressive tax planning, such as by routing revenues and profits to low-tax jurisdictions, and for enticing governments to compete for large new offices and facilities by offering lucrative incentives and tax breaks. Lawmakers globally are trying to establish corporate tax rules that would force multinationals with titanic digital operations to pay taxes in the countries where they sell their goods and services, not just where the multinationals are headquartered.

An Amazon employee prepares an order at the advanced robotics facility fulfillment centre, YHM1, in Hamilton, Ontario.NICK IWANYSHYN/Reuters

The Amazon playbook reveals how the company’s expanding presence in Canada was shaped by these strategies. In Canada, the union representing 12,000 CRA auditors and other government tax staff contends it has been putting pressure on the federal agency and politicians since 2018 to crack down on the legal – yet among governments, widely considered unfair – ways in which global tech and e-commerce companies book their profits made in Canada in other jurisdictions.

Amazon has run into difficulty in at least one other country by using a similar strategy. In 2009, tax authorities in Japan ordered Amazon to pay the equivalent of US$119-million in back taxes from 2003 through 2005 for sales in the country that flowed through a U.S. subsidiary.

The retail giant was much smaller then, with total global revenue of US$8.49-billion in 2005 and a profit of US$359-million. In 2021, Amazon’s total revenue was US$470-billion ­– US$408-billion, excluding its cloud-computing division ­– with a global profit of US$33-billion. Japan appears to benefit from forcing Amazon’s hand to report taxable income locally: The Seattle company paid approximately US$137-million a year in taxes in 2017 and 2018 as a result, according to a report by the Japanese business publication Nikkei.

The Globe requested an interview with Amazon in June, but the company declined to make any executives available. The Globe then detailed the findings of its investigation and provided the company with a series of questions related to the documents, which were accessed with the assistance of a source that was granted confidentiality because they were not authorized to speak publicly about the strategy.

In statements to The Globe, Ms. Gable said Amazon’s structure had evolved as its business presence in Canada grew, but she declined to go into detail about when or how it had changed.

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The Globe reviewed public records that suggest the company did shift its corporate structure in recent years, though not necessarily in ways that would expose the company to additional taxation. For example, Amazon Canada Fulfillment Services was converted to an Unlimited Liability Company in B.C. in 2018, the income from which can be consolidated with a U.S. parent. This would allow it to receive U.S. tax credits to offset Canadian taxes, which can be higher in some circumstances, according to Ontario tax lawyer and accountant David Rotfleisch, who has helped set up such businesses in the past.

Amazon pays corporate tax on the profits from its business lines that operate in Canada, Ms. Gable said in an e-mail. In three e-mails, however, Ms. Gable said Amazon’s Canadian retail operations are “subject to” corporate tax in Canada, without clarifying whether Amazon was required to pay any.

Ms. Gable also said that Amazon’s Canadian retail operations are, at present, managed by some people based in Canada, some in the U.S., and the company plans to continue hiring locally.

“As Amazon continues to invest in Canada, we make changes to our corporate structure to ensure we are in the best position to serve our local customers and selling partners, including our close to 40,000 Canadian employees and the almost 40,000 Canadian third-party sellers that sell their products in Amazon stores,” Ms. Gable wrote. “This is a common practice for businesses of all sizes. Our tax payments reflect our investments in Canada.”


Even if that’s true now, it was not always the case.

To understand how Amazon works, it’s best to look at the company’s obsession with “Day 1″ culture. Though Amazon has shaped much of the economics of the internet and became one of the world’s biggest multinationals over the past quarter-century, it prides itself on taking a startup mentality of focusing “relentlessly on our customers,” as founder Jeff Bezos wrote in a 1997 letter to shareholders – a now-famous letter Amazon still reprints in every annual report. Doing this, Mr. Bezos wrote, requires “continually reinforcing a cost-conscious culture.”

But as many of Amazon’s critics have argued for years, this culture has ramifications on the rest of society. Consumers love the company’s cheap, frictionless and sometimes same-day shipping, but those capabilities come with significant trade-offs for its employees, contract delivery staff and even governments.

People opposed to Amazon's plan to build a secondary headquarters (HQ2) in New York City hold a protest inside of an Amazon book store in 2018. The company eventually cancelled its New York plans after massive pushback from local residents and politicians over the plans for public funding.Stephanie Keith/Getty Images

Amazon has received at least US$4.18-billion in economic-development subsidies in the United States and at least US$4.7-billion over the past decade in similar tax breaks worldwide, according to a study published this year by the U.S. subsidy tracker Good Jobs First. Many of these were connected to the buildout of data centres that made Amazon Web Services (AWS) the global leader in cloud computing, though some are connected to Amazon’s retail and film production businesses.

The apex of this years-long quest to minimize taxes culminated in Amazon’s search for a city to house its second headquarters, which the company ran like an Olympic-bid contest. Nearly 240 jurisdictions applied to host “HQ2,” many of them offering millions or billions in tax breaks and other incentives. In 2018, New York and Northern Virginia won after offering nearly US$3-billion and more than US$500-million in incentives, respectively – though the company eventually cancelled its New York plans after massive pushback from local residents and politicians over the plans for public funding.

Even in Seattle, Amazon’s hometown, the company has sought to minimize local taxes, at one point successfully campaigning to quash a corporate salary tax that had already been passed by city councillors. (It was reintroduced and passed again in 2020.)

It’s the corporate structure of Amazon’s retail business in certain countries, however, that has most frustrated tax collection authorities across the world – and not just in Tokyo.

In 2017, the European Commission insisted that Amazon had set up a corporate structure in Luxembourg that allowed it to transfer about 90 per cent of operating profits from around the European Union to a holding company in the tiny country, significantly lowering its effective tax rate from 2006 to 2014. Commission officials tried to charge Amazon with repaying €250-million, plus interest, to cover what it called an “illegal tax advantage.”

It didn’t work out. Amazon challenged the Commission and won in 2021, with an EU court deciding the Commission “did not prove to the requisite legal standard that there was an undue reduction of the tax burden of a European subsidiary of the Amazon group.”

The U.S. Internal Revenue Service also issued a US$1.5-billion challenge to Amazon’s Luxembourg operations – over intellectual property licensing income across jurisdictions – and lost in court, too. Intellectual property arrangements, in which a sister company is required to pay for the use of logos, projects or other proprietary processes, are a technique used to legitimately transfer cash between countries.


The Amazon Canada Fulfillment Services in Nisku, Alberta on April 6.Megan Albu/The Globe and Mail

Canadian governments have a long history of rolling out red carpets for Amazon. Late last year, Alberta Premier Jason Kenney trumpeted an announcement by AWS as “the single largest investment in the tech sector in Alberta history, with up to a thousand jobs.”

But that supposed $4.3-billion investment came with many caveats – the figure included years of routine utility bills and unrelated expenses, such as the cost of importing proprietary equipment – and The Globe later revealed the true number of Amazon jobs to be closer to 240.

And in 2017, when Amazon announced that it was building a new Vancouver office and expanding its Canadian hub on the West Coast, the plans were endorsed by all three levels of government. “You have a committed partner in Canada,” then-federal cabinet minister Navdeep Bains said in the company’s news release, which also quoted B.C. Premier John Horgan and Gregor Robertson, Vancouver’s mayor at the time.

The executive in charge of Amazon’s Canada and Mexico operations said the company was committed to doubling the 1,000 employees already working in Vancouver. He added that Amazon was already among the biggest employers of software engineers in the country, and was looking forward to hiring more Canadians.

But inside Amazon’s Seattle headquarters, just a 2½-hour drive south, staff overseeing its Canadian retail operations were working with explicit instructions to reduce the chances of this arm of the firm having to pay corporate income taxes north of the border.

Prime Minister Justin Trudeau makes an announcement at the future offices of Amazon in downtown Vancouver on April 30, 2018. When Amazon announced that it was building a new Vancouver office and expanding its Canadian hub on the West Coast, the plans were endorsed by all three levels of governmentJONATHAN HAYWARD/The Canadian Press

To start, no one with the subsidiary in charge of the e-commerce platform in Canada was allowed to have any dedicated workspace in the country, nor could they reside north of the border for tax purposes.

Instead, the business was run by staff based in the U.S., who were barred from spending more than two weeks on a single trip or half of any year in Canada, according to the documents reviewed by The Globe. If someone at the Seattle headquarters anticipated needing more than 30 consecutive days in Canada to do their job, they would be seconded to the warehouse-operating subsidiary registered here.

These employees could visit Canada to do market research or meet with suppliers to determine which products were available for Amazon to buy and resell on its website, but all contracts were to be signed on American soil, the documents stipulate. Even things as simple as telling someone to sign up for Amazon services or discussing prices were forbidden while employees were in Canada.

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DT Cochrane, an economist at the Ottawa-based non-profit Canadians for Tax Fairness, said the federal government appears to have had little success even sketching the contours of how this type of tax planning has impacted the finances of Amazon or the Canadian treasury.

“How can we allow one of the biggest corporations in the world to sell goods and services across this country – with potentially tens of billions of dollars in revenue – to keep secret its actual revenue, profits, taxes and other country-level financial information?” he asked.

His concern extended to another potential benefit from Amazon’s past corporate structure as described in the documents: The blueprint may also minimize Canadian payroll taxes, given the instructions for retail staff to minimize their time in Canada.

“As long as a corporation thinks that it is cheaper to pay lawyers and accountants to create tax avoidance schemes, then they will do so,” Dr. Cochrane said.

Four years ago, the union representing the thousands of auditors and other tax professionals at the CRA polled its members and found 90 per cent of respondents believed multinational tech companies should be subject to Canadian taxes for any business they carry out within the country.

Jennifer Carr, president of the Professional Institute of the Public Service of Canada, said international firms frustrate CRA staff because they book profits from Canadian commerce in other tax jurisdictions – strategies that are legal, but nonetheless “shady, unsettling and unfair,” she said in an interview. While the union has pressed senior leaders at the CRA to pro-actively make changes, ”they haven’t heard us,” Ms. Carr said. “Our members see this inequity first-hand and want to level the playing field.”

The CRA told The Globe the agency cannot comment on Amazon’s operations.

In an e-mailed statement, spokesperson Etienne Biram said all resident corporations must file an annual return if they have carried on business in this country, had a taxable capital gain or sold taxable Canadian property, even if they don’t owe anything to the CRA.

He said the agency devotes “significant audit resources to large business taxpayers” to identify big companies that need auditing.

Still, little stops multinationals such as Amazon from designing their corporate structure in ways that legally minimize the taxes they pay in Canada. The very Canadians who enforce the taxation of multinationals believe Parliament should introduce legislation to curb these strategies.

Ms. Carr said the CRA has told her union it is “really looking to the lawmakers to make the changes” needed to better tax large multinational tech firms. That hasn’t happened yet, but she says her union is trying to educate MPs about the benefits of improving how Canada taxes these firms.


Consumers love Amazon’s cheap, frictionless and sometimes same-day shipping, but those capabilities come with significant trade-offs for its employees, contract delivery staff and even governments.Ted S. Warren/The Associated Press

Canada is not alone in struggling to collect tax revenue from companies selling goods and services to its citizens from abroad.

For years, many countries have been trying to reshape the global tax system to better respond to the phenomenon of multinational profit shifting. The Organization for Economic Co-operation and Development and the leaders of Group of 20 nations agreed nearly a decade ago to take a streamlined approach to corporate profit taxation.

By 2015, the OECD acknowledged that as much as US$240-billion in corporate tax was being left on the table annually thanks to opaque rules, poor global co-ordination and enforcement, and “aggressive tax planning by some multinational enterprises.”

It takes a long time to get dozens of countries to agree on global reform; the next few years were filled with a lot of promises and little action on what the OECD calls “base erosion and profit shifting,” or BEPS. Countries including Canada and France tried to get ahead of this, promising a 3 per cent revenue tax on multinational tech companies that sell digital ads or generate other sums from user data – though the Canadian model likely wouldn’t have had the same effect on retail transactions.

There was much celebrating by late 2021, when the OECD announced that 136 countries had agreed to a system that would establish a near-global minimum corporate profit tax rate of 15 per cent. The pact would also give greater powers to governments to tax large multinationals by at least that rate in the countries where they actually conduct business.

Included in the agreement was a separate promise to tax some of the world’s biggest and most profitable companies where they actually generate revenue. If a multinational’s revenues are more than €20-billion a year and pretax profit margins are greater than 10 per cent, the OECD wants to split up some of the excess profit above that 10 per cent and have it taxed in jurisdictions beyond the company’s home country.

The OECD is in the midst of consultations to implement its profit-shifting regime, and trying to figure out how, exactly, the excess profit will be split among the world’s countries. Yet again, the process is moving at a snail’s pace – and may not even capture a company such as Amazon.

In its response to The Globe’s queries about Amazon, the CRA heralded Canada’s support for the OECD’s efforts for better global taxation. And the structure of Amazon’s Canadian operations as described in the playbook is exactly the kind of profit-shifting tactic the OECD wants to stop. But Amazon’s profit margins don’t cross the 10-per-cent threshold, in large part because its margins from retailing aren’t as great as those of AWS, its cloud-computing unit.

The OECD has all but admitted it’s powerless to include Amazon in its profit-shifting regime; Pascal Saint-Amans, the organization’s tax director, told French television last year he hoped to force AWS on its own to comply with the program. In Canada, this still wouldn’t make a case for taxing Amazon’s retail profits because of the slim margins involved.

Shigeki Morinobu, a former long-time employee of Japan’s Ministry of Finance who has been studying and following tax law in that country since the 1970s, is among the many tax experts who worry that the OECD’s new proposed profit-shifting rules have been watered down after U.S. demands – or “far from the original discussion,” as he puts it.

Photo illustration by The Globe and Mail/iStockphoto

Even in Dr. Morinubu’s home country, Amazon’s increased annual taxes don’t tell the whole story. The tax law expert, who has taught at Princeton and Columbia, as well as the University of Tokyo, Chuo University and Osaka University, told The Globe that Japan’s attempt to thwart Amazon’s profit-shifting strategy there in the late 2000s may not have been effective: The National Tax Agency hasn’t explained whether the US$119-million penalty was ever paid. (In its responses to The Globe, Amazon declined to confirm if it paid the penalty or reached some kind of agreement with the agency.)

Though the agency made much hay about obtaining executive e-mails that connected Amazon’s warehouse business and parent company there, “the consequence is not clear,” Dr. Morinobu said in an interview.

Google had run into a similar fine last decade for taxes on sales not reported in Japan, a penalty worth the equivalent of roughly $35-million. But “the consequences are mostly the same,” Dr. Morinobu said, adding that it appears that the National Tax Agency is still unable to collect much money from the company due to royalty payments from Google’s Japan operations to those in Singapore, which is considered a tax haven.

There’s no simple way for tax agencies to counter these kinds of strategies. It’s deeply time-consuming and expensive for tax authorities to investigate and potentially repatriate lost revenue – just as it would be to implement a global system with consistent enforcement.

Robert Asselin followed the profit-shifting file while he was policy director for Bill Morneau during the latter’s first two years as Canadian finance minister ­– during which Amazon’s playbook was in use. Mr. Asselin is now the Business Council of Canada’s senior vice-president overseeing policy matters. The Liberal government supported the OECD’s BEPS work, he said in an interview, but he acknowledged pulling it off would be extremely difficult.

“This is why countries have to work together and implement it,” Mr. Asselin said. A strategy like Amazon’s, he said, can erode countries’ tax bases, which in turn can shift the burden to everyday Canadians and businesses: “That’s not a good outcome.”

With research from Stephanie Chambers and Rick Cash


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