The European Commission wants Amazon to hand over more than 250 million euros in back taxes and is proposing an update to tax law that may allow companies to avoid paying at the proper rate.
Amazon’s tax bill stems from the commission’s determination that an earlier ruling by a court in Luxembourg allowed the giant e-tailer to cut its tax liability between 2006 and 2014, something the commission said created an unfair advantage and crossed aid rule for European Union member states.
Antitrust commissioner Margrethe Vestager said Luxembourg’s ruling let Amazon shift profits from one operating affiliate, Amazon EU, to a holding company with no physical presence or employees, Amazon Europe Holding Technologies. By paying the holding company royalties from Amazon sales that exceeded 90 percent of Amazon’s profits in the EU, the company was able to lower its tax liability over eight years.
“In fact, the ruling enabled Amazon to avoid taxation on almost three-quarters of the profits it made from all Amazon sales in the EU,” Vestager said.
By way of example, Vestager compared Amazon to a local company in Luxembourg. While both are ostensibly subject to the same national tax laws, because of the tax ruling, “the local company would have to pay four times as much in tax as Amazon on the same profits,” Vestager said.
“That does not allow companies to compete on an equal footing and it is illegal under EU state aid rules,” she added.
As such, the commission ordered Amazon to pay 250 million euros to Luxembourg in back taxes, plus unspecified interest. Authorities in Luxembourg will be left to determine the exact amount owed.
France’s president Emmanuel Macron supported the EU’s efforts in an afternoon Tweet, lauding the commission for acting “with determination to enforce rules and fiscal justice.”
An Amazon spokeswoman said the company believes it “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,” the spokeswoman added.
Apple was ordered last year to pay 13 billion euros in back taxes to Ireland, with the commission taking issue with treatment of profits similar to those in the Amazon case, and Google in June was hit with a 2.4 billion euro fine for allegedly using anticompetitive tactics in its comparative shopping tool.
Apple appealed the decision, which is currently being considered by a court in Ireland, and Google in September followed that same route.
But pushback on its regulatory decisions doesn’t seem to be a deterrent for to commission.
In tandem with its decision on Amazon, the commission proposed a “far-reaching reform” of Europe’s value-added tax system, akin to the sales tax system used for goods in the U.S.
In a recent study, the commission found that in 2015 152 billion euros worth of VAT tax was lost, largely due to cross-border VAT fraud defined by companies avoiding the tax by selling or trading goods in other countries, which generally operate under individual corporate tax regimes.
The proposed reform calls for a single market tax system to be in place by 2022, marked by removing the “destination” provision currently used to assess the amount of VAT tax for goods. If put in place, the reform is estimated by the commission to reduce VAT fraud by 80 percent.
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