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EU orders Amazon to repay $295 million in Luxembourg back taxes
October 4, 2017 / 9:38 AM / in 14 days

EU orders Amazon to repay $295 million in Luxembourg back taxes

BRUSSELS (Reuters) - Amazon was told on Wednesday to pay about 250 million euros (221.44 million pounds) in back taxes to Luxembourg, the latest U.S. tech company to be caught up in a European Union crackdown on unfair tax deals.

The fine was much lower than some sources close to the case had expected and is only a fraction of the 13 billion euros that Apple Inc was ordered to pay to Ireland last year.

EU Competition Commissioner Margrethe Vestager, who has other big U.S. tech companies in her sights, has taken a tough line on multinational companies’ approach to tax.

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed,” Vestager said.

Amazon said it was considering an appeal.

“We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law,” Amazon said in a statement after the announcement.

Amazon shares were little changed in early Wednesday trading.

Though the EU has taken on several U.S. tech companies, both in antitrust and in tax avoidance cases, Vestager said that her approach was not biased against foreign companies

“This is about competition in Europe, no matter your flag, no matter you ownership,” Vestager said.

She also welcomed the debate kicked off by French President Emmanuel Macron who called for more integrated corporate tax regimes in Europe, aiming to close the loopholes used to reduce tax bills.

RAZOR THIN MARGINS

While the exact amount Amazon needs to repay is yet to be calculated, the 250 million euros is significantly less than the 400 million euros which sources close to the matter told Reuters a year ago was under consideration by Vestager.

The logo of the web service Amazon is pictured in this June 8, 2017 illustration photo. REUTERS/Carlos Jasso/Illustration

The bill suggests the Commission believes Amazon shielded around 900 million euros in EU profits from tax, calculations by Reuters show.

For most of its existence, Amazon has worked on razor thin profit margins to fuel its global expansion, making only $2.4 billion profit on global revenues of $136 billion in 2016.

The Commission said Luxembourg allowed Amazon to channel a significant portion of its profits to a holding company without paying tax. The holding company was allowed to do this because it held certain intellectual property rights.

Tax advisers say an important way for companies to shift profits out of the United States is to sell intellectual property, like brands or patents, to a subsidiary in a country where such profits are not taxed and have that unit license the intellectual property to other overseas affiliates.

Amazon’s corporate set up with subsidies in Luxembourg was also subject of a $1.5 billion court case with U.S. tax authorities, which Amazon won in March.

Amazon, which employs 1,500 in the grand duchy, is one of the biggest employers in the country of half a million people. It has a Europe-wide staff of some 50,000.

Luxembourg, whose tiny economy has benefited from providing a European base for multinational companies, rejected the finding and said it was looking at its legal options.

European Commission President Jean-Claude Juncker was prime minister of Luxembourg for almost two decades until 2013 and has been criticised for his role in enabling the many tax deals that are now being unravelled. He denies doing anything wrong and says the Commission is committed to ensuring fair taxation.

In 2014, Luxembourg made international headlines in the wake of the publication of “LuxLeaks”, documents that showed how large accounting firms helped multinational companies channel proceeds through the country while paying little or no tax.

Luxembourg is also under EU scrutiny over tax deals with fast food chain McDonald’s and French energy company Engie. Luxembourg has appealed against a ruling in 2015 that carmaker Fiat should pay it back taxes. As well as Ireland, tax for multinationals in Belgium and the Netherlands have also come under Commission scrutiny.

“Luxembourg has been fully cooperating with the Commission in its investigation and is strongly committed to tax transparency and the fight against harmful tax avoidance,” the country’s finance ministry said on Wednesday.

Amazon revamped its European tax practices in 2015 so that it can book sales and pay taxes in Britain, Germany, Spain and Italy instead of channelling all sales through Luxembourg where it is headquartered, a move that may raise its tax bill.

Addtional reporting by Tom Bergin, Editing by Alastair Macdonald, Jane Merriman and Mark Potter

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