Amazon contests basis of EC tax inquiry

Amazon contests basis of EC tax inquiry

Amazon is denying that it receives preferential corporate tax treatment from Luxembourg allowing it to reduce much of its European Union (EU) tax burden, following the European Commission’s announcement of a tax investigation earlier today (7th October).

“Amazon has received no special tax treatment from Luxembourg - we are subject to the same tax laws as other companies operating here,” a spokesperson for Amazon, Drew Herdener, told The Bookseller.

The main point of investigation is a 2003 tax ruling in the Grand Duchy that allowed a local subsidiary Amazon EU Sàrl to minimise how its profits were exposed to tax, even though – according to a Commission communiqué – “it records most of Amazon's European profits”. The EC explained: “Based on a methodology set by the tax ruling, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg.”

Announcing it would be staging a detailed probe into the issue, using its powers as the EU’s top competition authority, the Commission said “it considers that the amount of this royalty, which lowers the taxable profits of Amazon EU Sàrl each year, might not be in line with market conditions” – hinting Amazon gets special treatment in Luxembourg, for basing this key subsidiary in its jurisdiction. “The Commission has concerns that the ruling could underestimate the taxable profits of Amazon EU Sàrl, and thereby grant an economic advantage to Amazon by allowing the group to pay less tax than other companies whose profits are allocated in line with market terms,” the communiqué explained.

“National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods,” noted Joaquín Almunia, the EU competition Commissioner. “It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies.”

If the commission concludes that EU state aid rules – which are designed to stop member states giving unfair tax breaks and subsidies to locally based companies – have been breached, then it could order Amazon to pay back taxes to Luxembourg. These could potentially amount to many millions of euros.