Amazon embroiled in EU tax crackdown

Sarah Gordon, Vanessa Houlder and James Fontanella-Khan

European officials have demanded that Luxembourg hand over documents relating to Amazon's tax affairs as the online retail giant becomes embroiled in a crackdown that has already drawn in Apple, Starbucks and Fiat's financial arm.

The EU's competition commission has sent a request for information to the Grand Duchy, where Amazon's main European operating company is based, about whether its decisions on corporate tax complied with state aid rules, two people familiar with the matter said.

Lionel Bonaventure | AFP | Getty Images

"We are looking into what kind of arrangement Luxembourg has with Amazon," said an EU official. Another EU official said Brussels was conducting fact-finding missions in a number of EU countries as part of its drive to clamp down on "sweetheart" tax deals with large companies.

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The commission has already launched three in-depth investigations in Ireland, the Netherlands and Luxembourg into whether decisions made about corporate tax to be paid by Apple, Starbucks and Fiat Finance and Trade breached state aid rules. A request for information is the first step that could lead to a full investigation.

Amazon's tax structure has aroused criticism across Europe at a time when EU governments have been forced to impose tough austerity measures by cutting basic welfare benefits to bail out failed banks and cut budget deficits. Evidence that some large multinationals pay virtually no tax has fuelled negative sentiment to U.S. tech companies, which is now translating into tougher regulatory scrutiny across the EU.

Questions over Amazon's tax affairs will intensify scrutiny of a company whose power and popularity have led to questions over its business practices. It has faced criticism over working conditions in its warehouses, the alleged squeezing of suppliers and its role in putting small bricks-and-mortar retailers out of business.

The latest accounts filed by Amazon EU Sarl highlight its tax-efficient structure in Luxembourg, which reduced the company's overall tax rate by 8 percentage points last year to 31.8 percent, according to filings by the parent company.

Amazon EU Sarl earns profits on the online retailer's sales across Europe – 13.6 billion euros ($18.5 billion) in 2013 – because it owns the inventory and processes payments. Last year it owed 2.1 billion euros to another Luxembourg company, Amazon Europe Holding Technologies, for the use of intellectual property.

The investigations into Apple, Starbucks and Fiat Finance and Trade are scrutinizing the companies' "transfer pricing" arrangements, which determine how their taxable profits are allocated between countries. According to the commission, Luxembourg has failed to co-operate fully with the investigation.

Starbucks came under fire in Britain in 2012 for paying royalties to its Dutch operation, which held some of its intellectual property. Apple's tax affairs stirred disquiet last year after a U.S. Senate committee claimed that Dublin allowed the maker of the iPhone to apply a corporate tax rate of 2 percent or less.

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In principle, where the commission finds evidence of illegal state support, it can force the company to repay all the lost revenues from unlawful sweetheart deals.

If there is a full investigation, EU competition commissioner Joaquín Almunia is believed to be keen for it to be under way before he leaves office later this year. At the launch of the investigation into Apple, Starbucks and Fiat in June, he said the net could be cast more widely in the pursuit of "aggressive" tax avoidance.

"In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes," he said at the time.

An overhaul of the international tax rules for digital companies is planned by the Paris-based Organisation for Economic Co-operation and Development.

Amazon did not reply to requests for comment. Luxembourg and the competition commission declined to comment.

Additional reporting by Barney Jopson in Washington