The GPL FAQ is fairly clear:
Is making and using multiple copies within one organization or company “distribution”?
No, in that case the organization is just making the copies for itself. As a consequence, a company or other organization can develop a modified version and install that version through its own facilities, without giving the staff permission to release that modified version to outsiders.
However, when the organization transfers copies to other organizations or individuals, that is distribution. In particular, providing copies to contractors for use off-site is distribution.
To explain a bit further:
GPL obligations apply whenever distribution occurs. The question of when distribution of copyrighted material occurs is a matter for regional copyright law.
To answer why copyright law generally does not consider it to be distribution when a corporation makes a work available to an employee, we must consider the legal fiction of corporate personhood. Without giving too much detail (which I can't give, and would probably be better suited for Law.SE anyway), a corporation is a single person, capable of being one of the two parties in an act of distribution.
You might assume, then, that when a corporate person gives some copyrighted work to a natural person, it constitutes distribution. However, corporate persons are, by necessity, composed of natural, human people who execute the actions of the corporation. When the receiving natural person is an employee of the corporation, the corporation is effectively giving the work to itself, which doesn't cause distribution to occur. Therefore, no GPL obligations apply in that case.
If the recipient is not an employee of the corporate person (e.g., another corporation or an outside contractor) then distribution does indeed occur and GPL obligations must be observed.
However, note that the GPLv3 (but not v2) offers a special exception whereby service providers or contractors who receive the software solely for the purpose of making modifications for you or remotely executing the code on your behalf (e.g., AWS) do not enjoy full GPLv3 rights:
You may convey covered works to others for the sole purpose of having them make modifications exclusively for you, or provide you with facilities for running those works, provided that you comply with the terms of this License in conveying all material for which you do not control copyright. Those thus making or running the covered works for you must do so exclusively on your behalf, under your direction and control, on terms that prohibit them from making any copies of your copyrighted material outside their relationship with you.
