EU launches investigation into Amazon’s Luxembourg tax deal
Tue 7 Oct 2014
The European Commission is to launch an investigation into the tax arrangement that online retailer Amazon struck with Luxembourg, in a climate of increasing concern about high-scale corporate tax avoidance within austerity-struck Europe.
Under the deal being investigated the retail giant, headquartered in Seattle, pays virtually no tax on profits from its European operations. In May it was revealed that the company paid only £4.2mn tax on 4.3bn of retail activity during 2013.
The division of the company’s European arm is financially strategic, with its European sales technically being conducted with European subsidiary Amazon EU Sarl, which writes off profit by the arguably cynical requirement for it to pay substantial royalties to the parent company Stateside. The royalties are due for the benefit of using Amazon’s intellectual property and branding. In effect, the argument could be made that Amazon EU Sarl is a faux franchise reaping the benefits of a genuine one, at the tax-payers’ expense.
The Commission will investigate the 2003 deal with Luxembourg that laid the foundations for the current set-up, contending that it has given Amazon an economic advantage over competitors, both online and in the high streets. The fact that the Luxembourg pact was followed by sub-franchising of Amazon’s intellectual property outside the U.S. has led to an investigation by the U.S. Internal Revenue Service.
Replying to the news, Amazon said in a statement: “Amazon has received no special tax treatment from Luxembourg, we are subject to the same tax laws as other companies operating here.”
The European Union is no strange to issuing behemoth fines, but the amounts in question are potentially staggering, if Amazon should be required by an enquiry to repay the amount of state support given in the form of unpaid revenue, as estimated by an enquiry.