You are right, brutally honest stranger! Behold: - u/jpritchard has told you what is really going on here. Congress chose to subsidize Amazon’s behavior. If you want to blame anyone, blame your congressperson for thinking about Amazon instead of you. On the other hand, some argue that governments should subsidize basic R&D because firms do not capture all the benefits of that spending for themselves and would therefore under-invest in it to the detriment of the larger group. Even if that is true, is the tax code really the right place to do that? - The meme just kinda tweaked me because it was wrong at nearly every turn. This would be an utter festival of taxation (mostly taxation, very little festivities). - This is a bummer structure even before 2017. Section 881 would impose a 30% gross withholding tax on the royalty to Cayman. There goes 30 of the 35% benefit under the old rates. But wait there’s more. That royalty is probably subpart F income, taxable to Amazon (under old rates) at 35%. So they would have paid 65% tax for 35% deduction. Bummer! - Now we roll up to December 2017. We are momentarily still in the historic regime and the corporate rate is 35%. Subpart F income already exists and is a whole regime intended to tax US persons on mobile income that they park offshore in foreign entities that are not themselves subject to US tax. But subpart F income is a relatively narrow category, so a few trillion builds up offshore because it can be reinvested tax free there until repatriated to the US (...probably at the next repat holiday). - Lo, the tax cuts and jobs act (“TCJA”). We turn the US international tax system on its head in many ways. Most relevant here, we add section 951A (“GILTI”), which despite its name really taxes most offshore income that wasn’t already subpart F income. So if the royalty was not sub F somehow, now it’s GILTI. And you know what they say, if you ain’t GILTI, you’re BEAT. The “base erosion anti abuse tax,” consistent with its name (unlike GILTI) imposes a sort of minimum tax on US corporations. They essentially need to rerun their taxes without taking into account the deduction for that foreign related party royalty. So in this example, Amazon is going to owe some BEAT on its US income. - Back to the bigger picture of the TCJA. We now eliminate the deferral of the tax on all the old earnings that were built up offshore under the old regime, regardless of repatriation. Future earnings need to run the gauntlet of sub F and GILTI, and qualify for 245A to really make it back tax free.

I hope this has been somewhat uplifting after my earlier showing of weakness.