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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 has added Amazon to the string of multinational companies whose tax activities it is questioning, announcing on Tuesday that it was investigating whether Luxembourg had given the company illegal preferential tax treatment. | LONDON — The European Commission has added Amazon to the string of multinational companies whose tax activities it is questioning, announcing on Tuesday that it was investigating 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. |
A country’s using attractively low tax rates to lure businesses is not illegal under European Union rules. But making special corporate tax deals that are not available to all companies could amount to so-called illegal state aid. | A country’s using attractively low tax rates to lure businesses is not illegal under European Union rules. But making special corporate tax deals that are not available to all companies could amount to so-called illegal state aid. |
Apple’s tax dealings with Ireland have generated considerable attention, including a Senate investigation in the United States. But in Luxembourg, a tiny country where many big multinationals have operations, the tax investigations could potentially have a much bigger effect. | |
“The tone of the commission’s comments relating to Luxembourg is generally harsher than their statements on Ireland,” said Heather Self, an accountant at the British law firm Pinsent Masons, noting that the country was “becoming a focus of the state-aid investigations.” | “The tone of the commission’s comments relating to Luxembourg is generally harsher than their statements on Ireland,” said Heather Self, an accountant at the British law firm Pinsent Masons, noting that the country was “becoming a focus of the state-aid investigations.” |
The Amazon inquiry is also the latest sign of the heightened scrutiny big American technology companies are receiving in Europe, where lawmakers have routinely questioned their tax practices, their privacy policies and their dominance in the marketplace. | |
Amazon has faced a criticism in Germany, where local unions have gone on strike over the last 18 months and where the country’s book publishers have accused the company of violating local competition rules. | |
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 also used complex tax structures in places like Ireland and the Netherlands to shield themselves from paying corporate taxes. | |
In the Amazon case, the European Commission, the administrative arm of the European Union, is questioning whether Luxembourg gave the company a tax deal that might have enabled the retailer 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 it had not received any special tax treatment from Luxembourg.“We are subject to the same tax laws as other companies operating here,” it said. | In a statement, Amazon said it had not received any special tax treatment from Luxembourg.“We are subject to the same tax laws as other companies operating here,” it said. |
Luxembourg‘s finance ministry said it was "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 Amazon investigation centers on a complex web of company subsidiaries in Luxembourg. As part of a 2003 agreement with local authorities, Amazon was able to cap the amount of tax it paid, regardless of the company’s European profits, according to Mr. Almunia, who said that the tax arrangement remained in effect. | |
The commission contends that Amazon is able to use so-called transfer-pricing deals in which most of the company’s European revenue is 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 and cutting its tax bill, according to European authorities. | |
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 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 use of its international tax structure helped cut Amazon’s 2013 tax rate in the United States, 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 a “foreign tax differential” of 8.1 percentage points linked to the Luxembourg strategy for its European taxes, the company said. | The use of its international tax structure helped cut Amazon’s 2013 tax rate in the United States, 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 a “foreign tax differential” of 8.1 percentage points linked to the Luxembourg strategy for its European taxes, the company said. |
Luxembourg also has become home to a number of other large international companies, many of which have been attracted by its corporate tax policies. The steel giant ArcelorMittal has its headquarters there, and the British telecom company Vodafone has a financial subsidiary in the country. Neither company is under investigation by European authorities for its tax arrangements. | |
The commission’s continued focus on Luxembourg, which may have to recover back taxes from Amazon or other companies if Europe’s antitrust officials eventually find wrongdoing, comes at an awkward time for Jean-Claude Juncker, the former prime minister of that country, who is to become president of the European Commission in November. | |
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. | 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. | 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.” | “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.” |
The commission previously said it was examining whether Luxembourg had granted unfair tax advantages to the Finance and Trade unit of Fiat, the Italian automaker. Fiat has said it isn’t getting preferential treatment. | |
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. | |
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. | 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. |
“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.’' | “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.’' |
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. | 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.” |