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Amazon in Luxembourg Is Latest Target of European Tax Inquiries Amazon’s Tax Deal in Luxembourg Is Latest Target of E.U. Inquiries
(about 2 hours later)
LONDON — The European Commission announced on Tuesday that it had opened an investigation into whether Luxembourg had given preferential tax treatment to the e-commerce giant Amazon.LONDON — The European Commission announced on Tuesday that it had opened an investigation into whether Luxembourg had given preferential tax treatment to the e-commerce giant Amazon.
The investigation, which will explore whether Luxembourg broke the European Union’s competition rules, follows similar investigations into the tax arrangements of Apple in Ireland and Starbucks in the Netherlands. The commission, the administrative arm of the the European Union, is also investigating whether Luxembourg granted unfair tax advantages a financing unit of the Italian automaker Fiat. The inquiry, which will explore whether Luxembourg broke the European Union’s competition rules, follows similar investigations into the tax arrangements of Apple in Ireland and Starbucks in the Netherlands.
The commission, the administrative arm of the European Union, is also investigating whether Luxembourg granted unfair tax advantages to Fiat Finance and Trade, a unit of the Italian automaker.
Amazon’s European headquarters are based in Luxembourg, a tiny country where many multinationals have operations. The company has been criticized by some policy makers for its complex tax structures that have reduced its overall tax burden.Amazon’s European headquarters are based in Luxembourg, a tiny country where many multinationals have operations. The company has been criticized by some policy makers for its complex tax structures that have reduced its overall tax burden.
“National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods,” Joaquín Almunia, the vice president of the European Commission responsible for competition issues, said in a statement on Tuesday. “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.” The inquiry is the latest sign of the heightened scrutiny big American technology companies are receiving in Europe, where lawmakers have routinely questioned their tax practices, privacy policies and dominance of the business sectors in which they operate.
​Amazon also has faced a pushback in Germany where local unions have routinely gone on strike over the last 18 months and the country’s book publishers have accused the e-commerce company of violating local competition rules.
In the case of Amazon, Europe’s competition regulators are questioning whether Luxembourg gave the company a tax deal that might have enabled the company to gain unfair cost advantages over competitors.
“In a time when budgets are tight, companies should not be allowed to negotiate special tax treatment,” Joaquín Almunia, the vice president of the European Commission responsible for competition issues, told reporters on Tuesday. “Some multinational companies are using tax strategies to reduce their tax burden, eroding the tax bases in some European states.”
In a statement, Amazon said, “Amazon has received no special tax treatment from Luxembourg — we are subject to the same tax laws as other companies operating here.”
Luxembourg said it was cooperating with the European Commission’s investigations.
“Luxembourg is satisfied that the allegations of state aid are unfounded and that the investigation will allow the commission to conclude that no special tax treatment or benefits have been granted to Amazon,” the country’s finance ministry said in a statement Tuesday.
The country’s decision to cooperate follows a standoff with European antitrust authorities, who filed an injunction earlier this year to demand that Luxembourg supply information related to the ongoing tax investigations.
The investigation centers on a complex web of Amazon subsidiaries in Luxembourg. As part of a 2003 agreement with local authorities, Amazon was able to cap the amount of tax it paid no matter the company’s European profits, according to Mr. Almunia, who said that the tax arrangement remained in place.
The commission contends that Amazon is able to use so-called transfer pricing deals in which most of the company’s European revenues are sent to one Luxembourg-based subsidiary. That subsidiary then paid royalties to a separate Amazon unit, which had the effect of reducing the amount of profit the company generated from its European operations. ​ This complicated system allowed Amazon to cut its tax bill, according to European authorities.
The use of this complicated tax structure helped to cut Amazon’s annual tax rate last year to 31.8 percent, according to the company’s regulatory filings. An 8.1 percentage-point reduction linked to the Luxembourg strategy, combined with other deductions and tax charges, resulted in a net 3.2 percentage-point decrease in Amazon’s United States tax rate.
The continued focus on Luxembourg, which may have to recover back taxes from companies if Europe’s antitrust officials eventually find wrongdoing, represents awkward timing for Jean-Claude Juncker, the former prime minister of Luxembourg, who is to become president of the European Commission in November.
Critics have accused Mr. Juncker of helping to turn the small European country into a tax haven during his almost two decades as Luxembourg’s prime minister, though he is expected to play some role in the continuing inquiries when he assumes his new role next month.
“The European Commission will continue these investigations,” said Mr. Almunia, who will step down at the end of the month as part of the change in commissioners that occurs every five years, following elections to the European Parliament.
Industry groups have questioned whether Europe’s policy makers are making special targets out of big American tech companies like Apple and Amazon, compared with their local rivals. Many of those companies have used complex tax structures in places like Ireland and the Netherlands to shield themselves from paying corporate taxes.
Google, whose European headquarters are in Dublin and which also has been accused of unfairly reducing its overall tax burden, has yet to face an investigation into its practices, according to a company spokesman.
Yet Mr. Almunia dismissed such criticisms on Tuesday, saying that the investigations were instead focused on ensuring that no European country gave preferential treatment to one company over another.
“I don’t differentiate between companies,” said Mr. Almunia, before adding: “I can’t exclude that new investigations will not be opened.”