Amazon is ordered to pay nearly $300 million by EU over 'illegal tax advantage'
Amazon is ordered to pay nearly $300 million by EU over
'illegal tax advantage'
Arjun Kharpal October 4, 2017 CNBC.com
Amazon was ordered to pay 250 million euros ($294
million) to Luxembourg on Wednesday after the European Commission said the
online retailer had received illegal tax benefits.
According to regulators, Amazon received tax advantages
between 2006 and 2014 in the country without any "valid
justification."
"Luxembourg gave illegal tax benefits to Amazon. As
a result, almost three quarters of Amazon's profits were not taxed,"
Margrethe Vestager, the EU's commissioner for competition, said in a statement.
"In other words, Amazon was allowed to pay four
times less tax than other local companies subject to the same national tax
rules. This is illegal under EU state aid rules. Member states cannot give
selective tax benefits to multinational groups that are not available to
others," she added.
From June 2014, Amazon changed the way it operates in
Europe and the new structure is outside the EU Commission's authority on state
aid.
In the period investigated, Amazon was shifting its
profits from a company that was subject to tax in Luxembourg to another one
that wasn't subject to tax, known as the "holding company." The
latter had no employees, no offices and no business activities.
Luxembourg is due to receive the amount created by the
aid, though there are no fines under EU law. Luxembourg authorities said they
have taken notice of the decision and will "use appropriate due diligence
to analyze the decision."
"The decision of the Commission refers to a period
going back to 2006. Over time, both the international and the Luxembourg legal
frameworks have substantially evolved," they said.
Amazon said in response to the commission's decision that
it believes it did not receive any special treatment from Luxembourg and that
it paid tax in "full accordance with both Luxembourg and international tax
law."
"We will study the Commission's ruling and consider
our legal options, including an appeal. Our 50,000 employees across Europe
remain heads-down focused on serving our customers and the hundreds of
thousands of small businesses who work with us," the online retailing
giant said in a statement.
Tensions between Europe and US
The European Commission opened its investigation into
Amazon and Luxembourg's tax arrangements in October 2014.
Luxembourg and U.S. technology companies have been at the
center of the commission's probes into tax affairs and antitrust. Last year,
the EU ordered Ireland to recover 13 billion euros in taxes from Apple. The
commission is also looking into the tax deal between McDonald's and Luxembourg.
The EU has promised to scrutinize tax arrangements
between large mulitnationals and the bloc's member states. This case is likely
to increase tensions between Europe and the U.S. After the commission's
decision on Apple, Chief Executive Tim Cook denounced it as "total
political crap." The Amazon tax ruling is also set against a push by
President Donald Trump to come up with a money repatriation plan for U.S.
companies with big cash piles abroad.
At the heart of the EU's investigation into Amazon is its
network of subsidiaries in Europe and so-called transfer pricing. That is the
price of goods that one subsidiary of a company sells to another subsidiary
under the same corporation. This in itself is not illegal. But what is illegal
is if this transfer of goods is mispriced, therefore affecting the profits a
company makes, and subsequently how much tax it pays.
In 2004, Amazon restructured its operations to create
Amazon EU Sarl, which was its European operating headquarters. Amazon EU Sarl
pays a royalty to the parent company in Europe for use of intellectual
property. But that parent company is a limited liability partnership, which is
not subject to corporate tax in Luxembourg.
EU chief under pressure
The Amazon ruling could be embarrassing for Jean-Claude
Juncker, president of the European Commission, who was Luxembourg's prime
minister from 1995 to 2013.
At the opening of these investigations, many European
policymakers asked for Juncker's resignation. However, he denied any
involvement in the tax arrangements, saying that the prime minister doesn't
have enough power to restrict the work of tax authorities.
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