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04/12/2016

EU watchdog targets Amazon’s Luxembourg tax deals

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EU watchdog targets Amazon’s Luxembourg tax deals

Amazon is the latest multinational to be investigated by the European Commission.(soumit/Flickr)

Amazon’s tax arrangements with Luxembourg are being investigated by EU regulators, as the online retailer becomes the latest global company to be accused of striking tax-minimising deals with member states that may break the bloc’s rules.

Corporate tax avoidance has come under the spotlight on both sides of the Atlantic in recent years, as perfectly legal deals with authorities help companies save millions of dollars but which critics say is a form of subsidy at ordinary taxpayers’ expense.

The European Commission is examining whether Luxembourg broke EU state aid rules by agreeing to a deal that allows Amazon to operate almost tax free in Europe, the executive announced yesterday (7 October).

Amazon is structured so that all online sales in Europe are technically between customers and a Luxembourg company. Despite racking up almost €14 billion of sales each year, Amazon’s main European subsidiary, Amazon EU, reports almost no profit.

That is at least partly because it pays hefty fees to its immediate parent, Amazon Europe Holding Technologies SCS (AEHT) – a tax exempt partnership – in return for using Amazon intellectual property.

The Commission said it was investigating a 2003 deal between Amazon and Luxembourg that underpins this arrangement. The Commission said the agreement could give Amazon an economic advantage over other companies without such rulings.

The US company denied receiving preferential treatment.

“Amazon has received no special tax treatment from Luxembourg, we are subject to the same tax laws as other companies operating here,” it said in a statement.

US battle

Luxembourg’s finance ministry said there was no wrongdoing.

“Luxembourg is confident that the allegations of state aid in this case are unsubstantiated and that the Commission investigation will conclude that no special tax treatment or advantage has been awarded to Amazon,” it said in a statement.

Amazon is already locked in a court battle with the US Internal Revenue Service over the arrangement by which the Luxembourg partnership came to enjoy the rights to sell Amazon’s intellectual property outside the United States.

In court filings, Amazon has denied undercharging AEHT for these rights.

Companies found guilty of breaching EU rules on state aid could be forced to repay what Brussels determines to have been the amount of support given.

Amazon joins fellow US company Apple in the Commission’s sights after the watchdog accused Ireland of swerving international tax rules in its tax arrangements with the iPhone maker.

The Commission is also investigating similar deals between coffee chain Starbucks Corp and the Netherlands and Luxembourg tax rulings received by a subsidiary of Italian carmaker Fiat.

Positions

Tove Maria Ryding, tax coordinator at the European Network on Debt and Development (Eurodad), a network of 47 non-governmental organisations (NGOs) working on development cooperation, welcomed the announcement.

“It is good news for European citizens that the Commission questions these arrangements between transnational companies and European Union member states as they seem to undermine a level playing field which is at the expense of small and medium enterprises. We hope that the Commission is not hampered by Luxembourg's unwillingness to disclose the true owners of corporate subsidiaries in Luxembourg. This was the case in the investigation into Fiat’s alleged subsidiary ‘FFT’ (Fiat Finance and Trade)”.

Background

The public outcry over tax evasion by multinational companies have triggered a quest for pan-European solutions to tax fraud.

As the financial crisis rumbled on, multinational technology behemoths such as Apple, Google or Amazon found themselves under the spotlight, accused of dodging taxes, provoking the fury of hard-pressed taxpayers.

>> Read: The Irish loophole behind Apple's low tax bill

The European Commission in December 2012 released a package of measures to tackle the estimated €1.3 trillion lost to tax evasion and fraud in Europe.

>> Read: Commission moves to close tax fraud, evasion loopholes

The EU executive later widened its probe into how multinationals use countries such as Luxembourg to cut their tax bill.

>> Read: EU widens tax investigation into multinationals