EU turns its attention to Amazon
European body adds another high-profile name to its crackdown on multinationals’ tax avoidance in bloc.
The European Union is broadening its crackdown on multinationals’ tax avoidance schemes, opening an investigation yesterday into Amazon’s practices on suspicion the online retailer is not paying its dues on profits made across the 28-nation bloc.
The probe adds another high-profile name to the list of companies targeted by the EU, which is already investigating Apple, coffee chain Starbucks and the financial arm of carmaker Fiat.
The EU’s executive commission is trying to curb firms’ ability to avoid taxes by shifting profits made across the bloc to a subsidiary in a country where the company enjoys a very low tax rate.
In Amazon’s case, it registers its profits from across the EU at its unit in Luxembourg, a tiny country whose economy depends on attracting foreign capital. Amazon’s taxable profits in Luxembourg are further reduced by making royalty payments to another Luxembourg-based Amazon entity that is not subject to corporate taxation.
The result is that not only does Amazon pay little tax in many EU countries where it operates, but also that its effective tax rate in Luxembourg is particularly low.
“As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg,” said the European Commission, without providing figures.
About 40 per cent of Amazon’s revenue is generated outside the United States – about US$30 billion ($38 billion) – but it declined to say how much of that is from Europe.
In particular, the commission is looking at whether a tax deal Amazon struck with the Luxembourg Government in 2003 is illegal under EU law and distorts competition.
If the commission were to rule against Amazon in the coming months, the Seattle-based company would be likely to have to repay taxes for its European operations, its biggest overseas market.
EU Competition Commissioner Joaquin Almunia says the EU suspects the royalty payments between Amazon’s units in Luxembourg are not in line with fair market rules and are exaggerated with the intention of avoiding tax.
“National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods,” he said.
Several of Europe’s relatively smaller economies, such as Luxembourg, Switzerland, and Ireland, have a history of attracting multinationals with low corporate tax rates or banking secrecy to bolster their otherwise relatively small economies. Luxembourg has in recent decades become one of the world’s wealthiest nations per capita by doing so.
But since the financial crisis, many cash-strapped EU nations have sought to limit such tax avoidance systems. Popular anger grew on reports that big brands like Apple or Amazon were paying tiny amounts of tax in countries where they have large operations.
The commission has been going after both the companies and the governments.
Luxembourg lost a court battle against Brussels and eventually had to hand over tax information.
Both Amazon and Luxembourg rejected the commission’s claims that the firm had received a special tax treatment in that country.
“We are subject to the same tax laws as other companies operating” in Luxembourg, Amazon said.
What is happening?
The EU has opened an investigation into Amazon’s practices on suspicion the online retailer is not paying its dues on profits made across the 28-nation bloc.
Who else is being investigated?
Amazon joins a list of targeted companies including Apple, Starbucks and the financial arm of Fiat.
Why is it investigating?
It is trying to curb companies shifting profits to subsidiaries in particular countries to achieve very low tax rates.