Amazon could be facing a huge back tax bill after a preliminary finding from the European Commission’s competition arm ruled that a controversial deal the web retail giant struck with Luxembourg constitutes illegal “state aid”.
The finding is also an acute embarrassment for the Commission’s new president, Jean Claude Juncker, who was Luxembourg’s prime minister when the tax agreement with Amazon was signed.
The Commission’s inquiry into Amazon’s tax affairs began last October but official documents relating to the investigation were made public for the first time yesterday. “The Commission’s preliminary view is that the tax ruling ... by Luxembourg in favour of Amazon constitutes state aid,” the documents said.
The Commission added that the 2003 deal “appears to result in a reduction in charges that should normally be borne by the entity concerned in the course of its business”. One of Amazon’s Luxembourg subsidiaries, which holds the intellectual property rights to the Amazon website, is not liable for either Luxembourg or US corporate tax.
Amazon’s European headquarters are in Luxembourg, where all sales from across the continent are booked. This is despite the fact that goods are often sourced, stored and sold in member states. Amazon reported last year that it made sales of £4.3bn in the UK in 2013 but paid just £10m in corporation tax. The revelation of the negligible tax bill last year provoked popular anger and led to calls for a boycott of the web firm.
A spokesman for the Commission’s competition arm yesterday stressed that the probe was still ongoing. “This is the opening of the in-depth part of the investigation,” said Ricardo Cardoso. “Interested parties will have one month to comment and then we will decide on the next steps”.
Amazon, which employs around 1,000 staff in Luxembourg, denied it had received any special treatment. “We are subject to the same tax laws as other companies operating here,” the company said. Luxembourg also said it was confident it would be able to convince the Commission of the tax arrangement’s legitimacy “in due course”.
Mr Juncker was appointed as Commission president last November, a month after the probe was launched. He has said that he will not interfere in the investigation. The Commission’s competition arm, which is now headed by Denmark’s Margrethe Vestager, is also investigating Ireland’s tax arrangements with Apple and the Nertherlands deal with Starbucks as part of a crackdown on tax avoidance by multinational companies.
A Commission spokesperson said the first results would be presented by the middle of this year. The Commission can order countries to recoup any illicit state aid.
In 2013 Amazon reported sales of €13.6bn through its Luxembourg arm and profits of €28m. But profits were apparently reduced by €2.1bn owed to the Luxembourg subsidiary that owns the website’s intellectual property rights.
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