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Amazon’s Tax Deal in Luxembourg Is Latest Target of E.U. 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 has added Amazon to the string of multinational companies whose tax dealings it is investigating, announcing on Tuesday that it was examining whether Luxembourg had given the company illegal preferential tax treatment.
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 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. The commission, the administrative arm of the European Union, had previously said it was 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. A country’s offering attractively low tax rates to businesses is not illegal under European Union rules. But cutting special corporate tax deals that are not available to all companies could amount to illegal state aid.
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. That is the allegation at the heart of the commission’s investigation into Apple’s tax dealing with Ireland, as well. But as the commission casts a wider net in Luxembourg, a tiny country where many multinationals have operations, the tax investigations could potentially have a bigger impact on global corporations.
​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. The Amazon 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.
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. ​Amazon also has faced a pushback in Germany where local unions have routinely gone on strike over the last 18 months and where the country’s book publishers have accused the e-commerce company of violating local competition rules.
In Luxembourg, Europe’s competition regulators are questioning whether the government 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 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.”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 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.“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. Fiat last week rejected claims that it had received preferable tax treatment from the Luxembourg authorities.
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. Luxembourg’s willingness to cooperate with the tax inquiries follows a previous standoff with European authorities, who filed an injunction earlier this year to demand that Luxembourg supply information related to the ongoing tax investigations.
The Amazon investigation centers on a complex web of the company’s 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 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. Although Amazon generated more than half of its $74 billion in revenue from the United States last year, European countries — particularly Germany and Britain — remain some of the company’s largest global markets. Amazon’s European operations generated revenue of about $20 billion in 2013, or about two-thirds of the company’s international sales, according to company filings.
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. The use of its international tax structure helped to cut Amazon’s annual tax rate in the United States in 2013, which has a nominal rate of 35 percent, to 31.8 percent, according to the company’s regulatory filings. Part of that lower rate had been a result of an 8.1 percentage-point “foreign tax differential’' linked to the Luxembourg strategy for its European taxes, the company said.
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 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 that country, who is to become president of the European Commission in November.
“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. Critics have accused Mr. Juncker of helping to turn the small landlocked country of 550,000 people into a tax haven during his almost two decades as prime minister. Now he will be expected to play some sort of oversight role in the continuing inquiries after he assumes his new role next month.
Natasha Bertaud, a spokeswoman for Mr. Juncker, said Tuesday that the European Commission was independent from the activities of any country within the 28-member bloc.
“There are currently several open investigations against Luxembourg,” she said. “As commission president, Mr. Juncker will oversee this stream of commission work as with all other member states.”
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.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. The nominee to be the European Commission’s overseer of digital markets, Andrus Ansip, indicated this week that corporate tax rates might be something he also planned to watch.
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. “Tax is a really sensitive issue,” Mr. Ansip said Monday evening during his nomination hearing in Brussels. "There will be a negative response for those companies that are using negative tax policies.’'
Google, whose European headquarters are in Dublin and which also has been accused of unfairly reducing its overall tax burden, is not facing any investigation into its practices, according to a company spokesman.
Mr. Almunia, who will leave office next month as part of the transition to a new European Commission, on Tuesday dismissed criticisms that the tax investigations were targeting American corporations, 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.”“I don’t differentiate between companies,” said Mr. Almunia, before adding: “I can’t exclude that new investigations will not be opened.”