Europe Gets Tough on Amazon’s Tax Deals

European commissioners recently launched a scathing attack on Amazon, saying the company owes them €250 million, or $293 million, in taxes.

What is going on here, and how does this factor in Europe’s crackdown on tax avoidance?

“Luxembourg gave illegal tax benefits to Amazon,” said the Commissioner, Margrethe Vestager, according to BBC. “As a result, almost three-quarters of Amazon’s profits were not taxed. …Member states cannot give selective tax benefits to multinational groups that are not available to others.”

Tax evasion, the practice of deliberately attempting to get by without paying taxes, is of course illegal. However, big businesses have known for a long time now that by moving their business operations around they can take advantage of different tax rules across Europe and thereby dramatically cut their tax bills. This kind of so-called “tax avoidance” is more of a legal gray area.

In this case, the Commission charges that Luxembourg allowed Amazon to shield some 900m in European profits by channeling a significant portion of its overall profits through a holding company. Because holding companies can avail themselves of intellectual property rights, US companies have been able to shift profits out of the US and away from higher tax rates in individual European nations. In turn, that subsidiary is not taxed at the higher rates, and can license the intellectual property to affiliates as appropriate.

This practice, while arguably legal in the individual countries where the subsidiaries reside, has been the source of growing consternation for European officials who say that global companies should not be allowed to exploit individual tax differences in this way when they are making profits from the entirety of Europe. In effect, if you make a profit from European consumers you should pay a fair rate of tax and give back to Europe’s economy.

Amazon has rejected such accusations, saying, “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. We will study the commission’s ruling and consider our legal options, including an appeal.”

Luxembourg, a relatively small nation which has found itself a popular hub for businesses looking to enjoy low tax rates, has also rejected the accusations, saying that Amazon paid the correct taxes during the 2006-2014 period in question, and that Luxembourg does not provide illegal tax havens or unlawful tax deals.

This is of course not the first time that companies have been criticized and investigated over their tax schemes in the European sector. The EU recently scrutinized Luxembourg’s involvement with McDonald’s and the French firm Engie, to name just a few others.

In related news, the Commission is also referring Ireland to the European Court of Justice for its failure to collect €13 billion in back taxes from Apple. The Commission concluded a three year investigation into Apple’s tax agreement with Ireland last year and found that it had effectively paid just one percent on its European profits in 2003 and just 0.005 percent in 2014. 

Ireland and Apple have both rejected claims that they have done anything wrong, but the European Commission has been insistent that such “sweetheart deals” do break European law and allow companies to avoid taxation that matches the “economic reality” of their sales within Europe.

European skepticism of global business practices continues to be an ongoing source of friction. US companies have repeatedly warned that if Europe does crack down on tax in this manner, it will prevent US businesses from investing within the European sector. US businesses point out that such investment is vital for economic prosperity in the Eurozone and is sorely needed by some of Europe’s poorer nations.

Europe has hit back however saying that if global companies want to trade within Europe they must cease what the European Commission views as anti-competitive tax shielding. By paying a fair rate of tax, it argues, companies will therefore enjoy the European sector’s business and the sector will continue to flourish.

This entire debate speaks to an ongoing cultural war that is going on in the business sector as businesses seek to maximize profits while driving down tax, and the European market seeks to reform its tax laws and close loopholes that allow for tax avoidance.

This war on tax avoidance has already meant that businesses are changing their practices.

After the UK brought in specific regulations to prevent firms moving their money through convoluted mechanisms in order to pay lower taxes, Facebook posted a far higher tax bill in 2015. This month’s release of its 2016 tax information shows that while larger companies are still paying in to Facebook’s UK office, smaller deals are being made through Facebook’s Ireland outfit. Nevertheless, Facebook’s profits and tax payments rose in 2016 and none of this is to suggest that Facebook is doing anything improper, only that it is evidence of firms reacting to new laws and making adjustments accordingly.

Whether companies will be able to do this in the future remains to be seen, but European officials are now racing ahead in pursuit of closing down this kind of tax leniency.

Photo credit: Mike Seyfang.

43 comments

Joette B
Joette B2 months ago

WHAT A PERFECT POINT FOR FLAT TAXES EVERYONE EVERY CORPORATION EVERY trump EVERY kushner EVERY PENCE EVERYONE PAY EQUAL PERCENT LIKE IN A REAL MARKET OR GAS PUMP EQUAL TAXES EQUAL JUSTICE STOP THE GRAB AND GO GREED

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Winn A
Winn A2 months ago

Thanks

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Janis K
Janis K2 months ago

Thanks for sharing.

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David F
David F2 months ago

Low information liberals never recognize corporations do not pay the tax, no matter the rate.

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Peggy B
Peggy B2 months ago

Way to go EU. Make them pay.

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Lenore K
Lenore K2 months ago

ok

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Cruel J
Cruel Justice2 months ago

Anyone who believes large corporations pay their fair share of taxes, needs to consult a mental health expert immediately, and HOPE they can reverse your brainwashing.

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Anne M
Anne M2 months ago

Sneaky Luxembourg/Amazon.. - Where BIG money is involved,, there is also BIG opportunity for shady deals...

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Shane Kennedy
Shane Kennedy2 months ago

Paul Carter: UK the only net payer ? What planet have you been living on ? Ireland, for one, has been stripped of 10x our € gains, in fish stocks. The UK has also been the EU's main opposition to reining in corporate tax avoidance.

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Elizabeth H
Elizabeth H2 months ago

Make all corporations pay the tax they owe. I have to pay mine, so should they.

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