Amazon will reportedly be hit with a huge bill in back taxes, worth several hundred million euros, by the European Commission later today (Wednesday 4th October). The Financial Times has cited “several people familiar with the case” as confirming the EC is poised to levy the charge as part of its crackdown on tax avoidance by big multinationals.
If true, it will follow the controversial record-breaking €13bn bill the EC served to Apple for Irish back taxes last year, which sparked anger from the US government.
According to the FT, the case against Amazon centres around the Goldcrest project, which saw the company move its intellectual property into a non-taxable Luxembourg partnership in 2004. Luxembourg in turn introduced an effective ceiling on the retailer’s profits which could be taxed, which the EC sees as unfair and anti-competitive.
Luxembourg is now the headquarters for all Amazon’s European operations and an FT analysis of Amazon’s Luxembourg accounts has shown that the retailer sent about €1bn of royalties back to the US over a 10 year period to be taxed, but nearly €3bn remaining was not.
Neither Amazon or the EC has commented on the story.
Amazon’s accounting structure have long caused consternation in countries where it has high sales but books a low level of tax. In the UK last year the company racked up overall sales of $9.5bn (£7.3bn) for the year to 31st December 2016, according to accounts filed in the US, but yet the results it filed through Companies House for its UK Services arm, which relates to the company’s fulfilment operation and distribution, showed sales of $1.5bn, while its corporation tax halved to £7.4m. At the same time, the government gave the retailer £1.1m in grants to open warehouses, the accounts showed.
The situation led the Booksellers Association to call for a change in the current “outdated” and “discredited” tax law in the UK.
Following the latest development, the BA's chief executive Tim Godfray commented: “In June 2015, The Booksellers Association submitted a Formal Complaint to DG Competition in Brussels asking, inter alia, if the tax paid by Amazon in Luxembourg complied with the EU Rules on State Aid?
“In the BA’s submission to a House of Lords debate in October 2016 and, furthermore, in evidence submitted to the All Party Parliamentary Group on Responsible Tax, the BA drew attention to Amazon’s Goldcrest project, which had first been highlighted back in February 2016 by The Guardian newspaper. Amazon had set up a complex 28-step scheme of different companies which seemingly enabled it to move its intellectual property such as software and customer data into a non-taxable Luxembourg partnership. Did this complex web of different companies in the Goldcrest scheme enable Amazon to obtain an unfair tax advantage against its competitors? Was Amazon obtaining illegal State Aid? Goldcrest will, we believe, be central to the Competition Commission’s current Inquiry.
“It seems as if the Competition Commissioner has now taken the view that illegal state aid might well have been given. If that proves to be the case, then such aid puts Amazon in a really good place to be able to discount books and other products much deeper than its competitors.
“So the BA is delighted that the European Competition Commissioner has been investigating this. The rumour is that Amazon may well have to pay back taxes worth several hundred millions of euros. This is big stuff... very different to Amazon merely agreeing – without being fined - to withdraw MFN clauses from e-book contracts”.