THE EUROPEAN COMMISSION is set to launch a formal, detailed, investigation into potentially illegal state aid furnished to online retailer Amazon by Luxembourg for more than a decade, allowing it to drive down its tax bill.
It forms part of a clampdown against tax deals between large corporates and some EU member states – notably Apple in Ireland and Starbucks in the Netherlands.
Under the terms of Amazon’s agreement, its tax exposure to the Grand Duchy was capped and the overall cost was limited to less than 1% of the company’s European income, the Financial Times reports.
The commission claims Luxembourg allowed Amazon to misallocate gains within its corporate structure, in a way that fell short of standards expected of an arm’s-length transaction between corporate subsidiaries. The effect was the retailer could selectively drive down its tax liabilities.
Should the charges be proven, Amazon would face a substantial bill in Luxembourg. Amazon minimizes its tax bill by having a US unit that owns its technology licenses lease the rights to re-license the technology to a tax-exempt partnership based in Luxembourg.
Despite a jump in EU sales, the amount the company reports in Europe has dropped sharply in recent years, after the US tightened rules in order to prevent shifting profits.
All the countries and companies subject to the state aid probes reject any improper arrangements or wrongdoing.
Amazon was not immediately available for comment.
Commission vice president in charge of competition policy Joaquín Almunia said: “National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods. 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. This investigation concerning tax arrangements for Amazon in Luxembourg adds to our other in-depth investigations launched in June. I welcome that cooperation with Luxembourg has improved significantly.”
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