HOW AMAZON PAID NO INCOME TAX

Amazon is one of the largest companies in the world with a market cap of over $1.7 Trillion. Amazon's stock price has almost doubled in the past year and Jeff Bezos is close to becoming the first human with a net worth of 200 billion dollars, normally, a company of such large proportions would pay billions in tax but Amazon didn't pay a single cent in federal income tax on a profit of $11.2 billion in 2018 and still continues to pay very less to no tax.

How does Amazon get away with this?

A combination of existing tax rules has allowed Amazon and the big companies to dodge taxes and pay well below the standard corporate tax rate for many years. The new provisions in Trump's tax reform bill, which became law in 2017, only make this easier.

The research and development (R&D) tax credit was used extensively by Amazon to save tax. Approximately 7% of what Amazon spends on its R&D department, they get to claim as a deduction. In 2018 Amazon saved almost 1.5 billion dollars using these R&D credits. The American government did this to show the business's support to develop technology and remain as one of the most technologically advanced country. India also has

R&D tax credit to boost development in the country.

In 2017 the Trump administration did a big revision to the US tax code where a company could claim cost of depreciation as reason to not pay cash, this was very highly exploited. For example, if Amazon builds a warehouse it gets to claim the full cost of its depreciation as a tax deduction instead of spreading it out over a few decades.

Amazon also uses stock-based compensation to save tax money. Usually, companies give their employees stock options which mean employees can choose to be paid in the company stocks instead of hard cash. Big companies do this not only to maintain a good employee-owner relationship but also because it saves them money.

Amazon, however uses this method to evade taxes and save money at the same time. Amazon does not buy the stocks from the market and give it to their employees, they create new stocks, this dilutes the market and makes it less valuable to the general investors as dividends paid out are also being divided among more people now. As Amazon pays in stocks, they don’t have to pay tax on it, instead its the employee who pays the tax. This method works as long as the company's stock is always moving upwards in the long run. Amazon saved a billion dollars by giving out their employees in stock.

This affects smaller businesses and middle-class families who have to compensate for the tax not paid by Amazon in other forms. There is however, a bright side to it, the Government, by allowing tax concessions to massive corporations help increase technological developments in the country and also help increase trade with other countries, and therefore help in boosting the economy.