Amazon’s Luxembourg Taxes Under Fire as EU Expands Global Probe

By Gaspard Sebag

Amazon.com Inc. (AMZN) faces an in-depth European Union probe into a 2003 fiscal deal with Luxembourg over suspicions the company unfairly shifted profits to the country to lower its taxes.
Most European profits of Amazon are recorded in Luxembourg but are not taxed there as a result of the pact, which is still in force today and applies to a subsidiary in the Grand Duchy, the EU said in a statement.
The EU inquiry into Amazon comes amid a global crackdown on corporate tax-avoidance as governments struggle to increase revenue and reduce deficits. It expands a probe into Apple Inc. (AAPL) in Ireland, Starbucks Corp. (SBUX) in the Netherlands and Fiat Finance & Trade in Luxembourg.
“National authorities must not allow selected companies to
understate their taxable profits by using favorable calculation methods,” EU Competition Chief Joaquin Almunia said in the statement.
The Luxembourg ruling allows Amazon EU Sarl to pay a tax-deductible royalty to a limited liability partnership established in the country that isn’t subject to corporate taxation, the EU said. This may amount to an unfair advantage.
Prices for intra-group transactions have to be estimated on market prices, otherwise groups of companies could lower their taxable profit, the EU said. Firms that buy and sell goods or services from the market would be at a disadvantage.

Photographer: Angel Navarrete/Bloomberg

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Possible Recovery

Luxembourg hasn’t provided any detail about any expiry date for that tax ruling, a person familiar with the case said. The Brussels-based commission has the power to ban and order recovery of selective public subsidies, including tax advantages, that distort competition.
Luxembourg’s Finance Ministry and Amazon didn’t respond to requests for comment ahead of the EU’s statement.
The Financial Times reported earlier on the Amazon case.
The EU is also looking into Luxembourg’s tax deals with Microsoft Corp. and McDonald’s Corp., people familiar with the matter said in July.
Tax probes including delving into Apple’s agreements with Ireland are a priority, according to the woman set to take over from Almunia as the European Union’s competition chief.
Margrethe Vestager, a former Danish economy minister, said last week that it’s important big companies pay a fair share of taxes and that small firms aren’t left to carry the burden.
The commission has said tax avoidance and evasion in the EU cost about 1 trillion euros ($1.3 trillion) a year.
Apple and Irish authorities have criticized a preliminary EU finding that the country gave favorable tax treatment in return for job creation. Gibraltar said last week that Almunia showed Spanish bias for probing the territory’s tax system.