After Apple, Europe Goes After Amazon For Alleged Unpaid Taxes
After Apple, Europe Goes After Amazon For Alleged Unpaid
Taxes
EU is set to order Luxembourg to recoup hundreds of
millions of euros from Amazon
Updated Oct. 3, 2017 2:51 p.m. ET
BRUSSELS—The European Union’s antitrust regulator is set
to order Luxembourg to retrieve roughly several hundreds of millions of euros
in allegedly unpaid taxes from Amazon.com Inc. as soon as Wednesday, according
to people familiar with the matter.
The decision would come amid a renewed crackdown by the
EU, which has promised to scrutinize tax arrangements between its various
member states and big multinationals operating in Europe.
Regulators in Brussels have homed in on sweetheart tax
deals that governments have issued to large multinationals in allegedly illegal
state aid. Last August, the European Commission ordered Apple Inc. to repay
Ireland €13 billion ($15 billion) in what it said was uncollected taxes, a
ruling both Apple and Ireland are contesting.
U.S. officials under former President Barack Obama
sharply criticized the EU’s so-called state-aid investigations, arguing the
moves undermine international tax norms. The EU’s latest decision would come as
Republicans are working on U.S. rules that would prevent companies from pushing
more profits abroad, which can be relatively easy for technology and
pharmaceutical companies to do by putting intangible assets in low-tax
countries.
For the EU, Luxembourg’s tax practices in particular came
under the spotlight after leaked documents revealed details of hundreds of
highly favorable deals it has granted to companies including PepsiCo Inc. and
FedEx Corp.
Since the Apple decision, Amazon has stood out as one of
the largest targets under investigation by the EU.
The commission is also continuing to investigate
Luxembourg’s tax treatment of McDonald’s Corp. and Engie SA.
The commission first opened its formal probe into
Amazon’s tax arrangements with Luxembourg in October 2014, arguing that a 2003
deal between the two effectively caps the U.S. company’s tax payments in the
Grand Duchy. The deal was part of a series of transactions known at Amazon as
Project Goldcrest.
Central to the case is a royalty fee, estimated at about
€500 million annually, which Amazon EU Sarl—Amazon’s European operating
headquarters at the time of the case—paid to a Luxembourg parent company. The
royalty, for use of the group’s intellectual property rights, reduced Amazon’s
tax bill in the country because the Luxembourg parent is a partnership that
wasn’t subject to local corporate tax.
Between 2006 and 2013, the years that specific structure
was in operation, the untaxed Luxembourg parent collected EUR3.39 billion
($3.98 billion) in income “related to royalties from affiliated undertakings,”
or “based on agreements with affiliated companies,” and reported EUR1.89
billion in untaxed profit, according to company filings in Luxembourg. That
could translate into hundreds of millions of euros in tax liability, according
to experts in European state-aid cases, The Wall Street Journal reported last
year.
When the commission filed its formal probe in 2014. it
questioned the methodology used to calculate that royalty, which it described
as “cosmetic,” and said Luxembourg’s tax calculations didn’t appear to comply
with international guidelines. Luxembourg’s authorities may not have properly
assessed the 2003 deal given they approved it within “a very short period” of
11 working days, the regulator said at the time.
Amazon and Luxembourg’s government say the company
received no special treatment. Luxembourg has argued that the Amazon royalty
payments it approved correspond to international norms. Amazon has said it
“pays all the taxes we are required to pay” and that “our profits have remained
low” because of big investments it has made in Europe.
The regulator’s move comes as France, Germany, Italy and
Spain are seeking to convince the bloc’s executive body to establish an
“equalization tax” on revenue generated in Europe by digital companies. It is
aimed at reflecting what they believe companies should be paying in corporate
tax.
The Financial Times earlier reported that the EU is
expected to lodge its decision against Amazon on Wednesday.
Congress and President Donald Trump are trying to push
through a tax plan this year that would create a so-called territorial tax
system in the U.S., in which U.S.-based companies could bring back future
foreign profits tax-free. Under current law, U.S. companies owe the full 35%
corporate tax on their world-wide profits but can defer that second tax until
they bring the money home.
— Richard Rubin contributed to this article.
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