EU launches probe into Amazon's Luxembourg tax deal

BRUSSELS - The European Commission will launch a probe into Amazon's tax arrangements in Luxembourg, the EU's competition chief has confirmed.

Speaking with reporters on Tuesday (7 October), Joaquin Almunia i said the investigation would examine whether Luxembourg had "granted a tax advantage to a large multinational … which constitutes state aid and would distort competition in the EU".

In question is a tax ruling made by Luxembourg's tax authorities in 2003 which, more than a decade later, is still being used to calculate the taxes paid by the online warehouse firm.

Most of Amazon's €14 billion worth of European sales are recorded in Luxembourg but are not subject to corporation tax in the Duchy as the result of a scheme which allows the company to shift its profits by using royalty payments.

Instead, Amazon's main European subsidiary, Amazon EU Sarl, pays fees to its parent company Amazon Europe Holding Technologies SCS, a tax exempt partnership, in return for using Amazon's intellectual property.

"We are not calling into question the general tax policy of Luxembourg but whether tax authorities have been too accommodating to Amazon … and given them selective treatment," added Almunia.

The investigation into Amazon follows decisions by the EU executive to examine the tax arrangements of car manufacturer Fiat in Luxembourg, as well as Apple and Starbucks in Ireland and the Netherlands, respectively. The three ongoing cases are also focused on the use of subsidiary firms to minimise tax bills.

Under EU competition rules, special tax rulings for individual companies must not result in them getting preferential treatment, and paying less than rival firms.

If successful, the EU executive has the power to force firms to pay a sum equivalent to the "unlawful aid" they received from governments.

The 'sweetheart' agreements between multi-nationals and governments have been brought into the political spotlight as cash-strapped states try to increase their tax revenues.

"At a time when national budgets are tight … it is even more essential to make sure that multinationals pay their fair share of taxes and do not leverage their power to pay lower tax rates," noted Almunia. The commission estimates that tax avoidance and evasion costs about €1 trillion per year across the 28 country bloc.

In another twist, Almunia told journalists the investigations would be continued by the next commission, headed by Jean-Claude Juncker, who was Luxembourg's prime minister when the 2003 ruling was made.

In a statement, the Luxembourg government said that it was "confident that the allegations of state aid in this case are unsubstantiated and that the commission investigation will conclude that no special tax treatment or advantage has been awarded to Amazon".