The European Commission has opened an in-depth investigation to examine whether or not the tax authorities in Luxembourg struck a special tax deal with Amazon, which it says may have given the online retailer preferential treatment and breached the EU’s rules on state aid
This comes after announcements last week into similar investigations into the tax arrangements of Apple in Ireland and Fiat in Luxembourg.
Joaquín Almunia, Commission vice president in charge of competition policy, 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.’
The Luxembourg tax ruling in favour of Amazon which is under investigation dates back to 2003 and is still in force. It applies to Amazon's subsidiary Amazon EU Sàrl, which is based in Luxembourg and records most of Amazon's European profits.
Under this deal, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in that jurisdiction.
The Commission says it has concerns that this transfer pricing methodology could underestimate the taxable profits of Amazon EU Sàrl, and thereby grant an economic advantage to Amazon by allowing the group to pay less tax than other companies whose profits are allocated in line with market terms.
Algirdas Šemeta, Commissioner for taxation, said: ‘Fair tax competition is fundamental for a healthy single market and our common economic prosperity. It is essential to tackle the harmful tax practices which erode the tax bases of EU member states.’
Luxembourg initially dragged its feet over providing the information requested by the Commission in relation to its tax ruling practices, only providing some of what was required following a formal notice from the authorities in August.
This latest investigation concerning tax arrangements for Amazon in Luxembourg follows announcements that in June the Commission opened three in-depth investigations into individual tax rulings relating to transfer pricing arrangements in Luxembourg (Fiat Finance and Trade), The Netherlands (Starbucks) and Ireland (Apple).
