EC investigates Amazon tax base in Luxembourg

As part of its ongoing tax investigations, a formal investigation into the online retailer Amazon has been opened by the European Commission (EC) on the tax agreement between the multinational company and Luxembourg.

Further to this, the EC, which is the European Union’s (EU) executive arm, is to press Luxembourg on several allegations involving more than 300 global companies.

Amazon insists it “received no special tax treatment from Luxembourg” and refutes culpability, stating “we are subject to the same tax laws as other companies operating here”.

The main focus of the investigation is a 2003 local tax ruling granted to Amazon EU Sàrl, the main operating subsidiary in Europe of Amazon. This ruling allows Amazon EU Sàrl to depress its taxable profits massively by paying large royalties to a sister entity, which is not subject to Luxembourg tax and is still in force today.

Details of the deal released by the EC show it contained a limit on the tax base which equates to Luxembourg’s authorities allowing most of Amazon’s profits to escape a tariff.

The complicated accounting laws and legal structures in Luxembourg allow for the creation of systems to move profits from countries with higher tax to low-tax Luxembourg.

However, the EC is looking to see if Amazon was granted any special privileges.

In Member States of the EU, such tax rulings are common practice. However, Margrethe Vestager, the European commissioner for competition, noted they could constitute state aid if, in such tax rulings, Member States accept that “a tax base of a specific company is calculated in a favourable way which does not correspond to market conditions”.

Such rulings “may give to the company a more favourable treatment than what other companies would normally get under the country's tax rules”, she added.

Joaquín Almunia, EC vice president, wanted to make it clear they were investigating whether “the tax authorities of Luxembourg have been too accommodating to Amazon in applying transfer pricing rules” and not Luxembourg’s tax system.