EU rules against Amazon in Luxembourg
The EU has found that Amazon's tax arrangements in Luxembourg probably constitute unlawful "state aid".
The European Commission said that its "preliminary view is that the tax ruling... by Luxembourg in favour of Amazon constitutes state aid." This was essential done by capping the amount of tax that Amazon had to pay to Luxembourg authorities by capping royalty payments to other Luxembourg subsidiaries.
According to the Financial Times in the commission’s view, Luxembourg deviated from international standards by offering Amazon a cap on the amount of corporation tax it would need to pay in any given year. This cap is less than 1 per cent — approximately €75m in 2013 on Amazon operating company turnover of around €13.6bn.
The ruling regards payments of royalties from one of Amazon's Luxembourg subsidiaries to another of the company's Luxembourg subsidiaries.
The European Commission began an investigation into Amazon's tax arrangements in Luxembourg last year after activists and UK MPs questioned the relationship between its various subsidiary companies within Luxembourg and its subsidiaries in other parts of the EU including Britain.
The Commission has now found that Luxembourg did not properly look into Amazon's "transfer pricing" proposals (how royalty payments would be moved between different Amazon subsidiaries) and whether the country properly assessed the proposed tax regime.
According to the document released by the European Commission, Amazon gave Luxembourg no explanation of the intellectual property for which the royalty was paid. The Commission also states that the ruling was issued within 11 working days of the first Amazon request, “a very short period of time had a transfer pricing report been submitted and assessed in this case”.
Questions have also been raised over the size of payments between Amazon subsidiaries and how these are calculated.
With the Commission stating that, "Amazon has a financial incentive to exaggerate the amount of the royalty" between its Luxembourg head office company and an Amazon firm that holds shares in the head office company.
"If the royalty is exaggerated, it would unduly reduce the tax paid by Amazon in Luxembourg by shifting profits to an untaxed entity from the perspective of corporate taxation," the European Commission said.
In addition “The transfer pricing arrangement put in place by Amazon and accepted by the contested tax ruling effectively contains a cap on a remuneration which seems too low,” the European Commission said.
However, Amazon said it "has received no special tax treatment from Luxembourg".
"We are subject to the same tax laws as other companies operating here [in Luxembourg]," it said.
The Luxembourg finance ministry said: "Luxembourg is confident that the state aid allegations in this case are without merit and will be able to convince the Commission of the legitimacy of the anticipatory decision in question and that no competitive advantage was granted," it said.
The EU reminded Luxembourg and Amazon that "all unlawful [monies] may be recovered from the recipient."
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