A lengthy investigation by the European Commission has revealed the tiny EU nation, Luxembourg was granting Amazon unfair tax benefits compared with other companies operating in the region.
Not for the first time has Amazon found itself in hot water with the EU for underpaying on its tax. In 2012 reports surfaced that Amazon’s UK arm had paid just over £2.4 million in corporation tax, but received in excess of £2.5 million in taxpayer-funded government grants.
At the time, the chairwoman for the government-spending watchdog, the Public Accounts Committee’s Margaret Hodge had described Amazon’s tax contribution as a “joke”.
Amazon has once again been caught up in illegal tax deals resulting in the company paying far less tax than local businesses. The investigation has found that while most European profits of Amazon were recorded in Luxembourg, they were not taxed there.
“As a result, almost three-quarters of Amazon’s profits were not taxed,” said Margrethe Vestager, European commissioner for competition.
The tax benefits allowing Amazon to pay four times less tax than other local companies subject to the same national tax rules.
Vestager has said Luxembourg must recover the unpaid taxes from the US Tech Company, plus interest.
Amazon has two Luxembourg-based subsidiaries: Amazon EU, which operates the company’s European retail business, and Amazon Europe Holding Technologies, which acts as an intermediary between Amazon EU and the U.S. parent, and which the Commission described as an “empty shell.”
Making a purchase from any of Amazon’s EU websites, customers are contractually buying it from Amazon EU, which records the sales and the associated profits. The holding company holds the rights to Amazon’s intellectual property, and it licenses that IP to Amazon EU, with the revenues going to the U.S. parent through a “cost-sharing” agreement.
Amazon EU pays corporate tax however, as a limited partnership, Amazon Europe Holding Technologies does not. The operating company’s payments to the holding company reported as being, on average, more than 90% of its profits, which, according to the Commission, was one-and-a-half times higher than what the holding company needed to pay to Amazon in the U.S. under the cost-sharing agreement.
Amazon has unsurprisingly defended their actions and has stated that they are considering an appeal of the ruling, “we will study the commission’s ruling and consider our legal options, including an appeal.”
Amazon going on to comment in their statement released shortly after the announcement that Amazon believe they “did not receive any special treatment from Luxembourg” and that they “paid tax in full accordance with both Luxembourg and international tax law.”