The Stack Archive

EU commission: Amazon’s Luxembourg tax deal may have been illegal, and mammoth taxes due

Fri 16 Jan 2015

Online retailing giant Amazon may have broken the law with its ‘sweetheart tax deal’ with Luxembourg, a preliminary finding from the European Commission has asserted.

The Seattle-based company officially came under investigation by the commission last October, following revelations in May that it had paid only £4.2mn tax on £4.3bn of turnover during 2013. The company has structured itself quite elaborately as a self-fulfilling franchise operation, wherein European profits arrive to Amazon EU Sarl, which pays royalties to Seattle for brand operations.

The Luxembourg deal took effect in 2003, and the revelation about 2013 inspired an investigation by the U.S. Internal Revenue Service as well as catching the attention of Brussels.

Under European law the Transfer Pricing Agreements that have allowed Amazon to practically vaporise its tax liability here permit a company’s taxable profits to officially reside in the lowest-taxing country in its chain of subsidiaries, so long as it keeps its prices aligned to the general market. Amazon, which was founded in 1994 and employs 88,400 people worldwide, does not even register high enough in the tax ecostructure to qualify to pay corporation tax, but contributes instead by means of a tax-deductible royalty.

When confronted with the controversy in October, Amazon responded that it had received “no special tax treatment from Luxembourg”, and that it was not operating outside of the tax laws to which other companies are subject in the region.

The head of the Commission undertaking the investigation is Commission President Jean-Claude Juncker, who was Luxembourg’s prime minister when the deal was first struck, so one can expect an unusual insight into the malfeasance – if any is finally attributed to Amazon. The consequences of a ratification of the initial finding, fines excluded, would take in ten years’ worth of unpaid tax, a levy of such staggering amounts that it is difficult to say whether payment of them would benefit the member states more than any retreat from the market by Amazon.

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