Brussels is to give its first detailed criticisms of Amazon’s favourable tax arrangements in Luxembourg on Friday in a move that may shed unwelcome light on the financial workings of the Grand Duchy under its former prime minister, Jean-Claude Juncker, who now heads the EU executive.
Juncker’s predecessors at the European commission said in October they were investigating sweetheart tax arrangements between Amazon and the Luxembourg authorities in 2003. The investigation centres on suspicions that the deal amounted to illegal state aid or subsidies, distorting the EU single market.
Margrethe Vestager, who became the new competition tsar in November, is to publish for the first time the 23-page document that was sent to Luxembourg in October. It sets out the grounds for suspecting that Amazon enjoyed illegal state aid in the Grand Duchy.
Commercially sensitive sections are being omitted from the document, which is likely to result in more information being gathered on Luxembourg’s tax practices under Juncker.
The Amazon case is especially sensitive as Juncker was very vocal in taking much of the credit for persuading the online retailer to build a centralised European hub in the Grand Duchy in 2003.
Vestager, a former deputy prime minister of Denmark, is known to favour a tough line and a more level playing field for company tax in the EU. She has pledged to carry on the Amazon investigation and to extend her questioning of government tax rulings for multinationals to all EU member states.
How the Juncker-led commission responds to the Amazon case it has inherited – and to further tax deals subsequently laid bare in the LuxLeaks scandal – is being seen as an early test of the credibility of the EU president, and the sincerity of his promises not to influence state aid inquiries, even if they stray close to uncomfortable areas of his past.
Amazon has consistently said it “received no special tax treatment from Luxembourg – we are subject to the same tax laws as other companies operating here”.
Four years ago, Luxembourg also appointed Amazon’s head of tax, Bob Comfort, as the country’s “honorary consul for the Seattle region”, tasked with helping to attract US tech firms to the tiny European state. Comfort has since retired from Amazon.
The Amazon partnership at the heart of the Luxembourg state aid investigation is understood to be Amazon Europe Holding Technologies SCS (AEHT). It receives hundreds of millions of euros in royalties each year under a licensing agreement with the online retailer’s main European trading business, Amazon EU Sàrl, also registered in Luxembourg.
As a result of these heavy royalty costs, reported profits – and therefore tax bills – at Amazon EU Sàrl have for years been comparatively modest.
Amazon EU Sàrl is the company with which millions of shoppers are transacting when they buy goods online in the UK, Germany, France and other European countries.
It made sales of €13.6bn (£10.4bn) last year, but posted pre-tax profits of just €23.3m (£17.8m) after revenues were offset by large expenses, including €637m loosely described in the accounts as “primarily … charges related to licence agreements and royalties with third parties and affiliated undertakings”.
Much of that is thought to be payments to AEHT, which in the same year received €557m in income from other Amazon group companies. Accounts for Amazon EU Sàrl show it owed AEHT €2.1bn at the end of 2013.
In October Brussels said it “considers that the amount of this royalty, which lowers the taxable profits of Amazon EU Sàrl each year, might not be in line with market conditions”. It added: “The commission has concerns that the [2003 tax] ruling could underestimate the taxable profits of Amazon EU Sàrl.”
The latest accounts for AEHT show that, from 2007 to 2013, the partnership received €3.31bn of income thanks to “agreements with affiliated companies”, though again Amazon EU Sàrl is not named. AEHT paid no tax in on resulting profits for the period, which totalled €1.928bn. That is because such partnerships are not regarded as tax resident in Luxembourg.
Officials at the European Commission are not the first tax experts to dispute the profits in AEHT. American tax authorities have for years been claiming in the US courts that the partnership’s large profits have flowed from AEHT failing to pay sufficiently high sums for controlling European licensing rights.
These intellectual property rights ultimately reside in US-based Amazon companies, US tax officials claim, and the group has been under-charging AEHT in a way that has unfairly lowered the group’s US tax bill.
Accounts from 2007 to 2013 for AEHT show the partnership paid out €1.58bn in “other charges”, again loosely described as consisting “primarily of charges related to agreements with affiliated companies”. It is this amount that US tax authorities claim is too low, though Amazon contest the allegation.
European parliament leaders on Thursday deferred until next month a decision on whether to establish a full parliamentary inquiry into the tax affairs revealed by the Guardian and other newspapers in early November. The extensive disclosures showed hundreds of household-name international companies were taking advantage of Luxembourg’s generous tax rulings.
A parliamentary inquiry would be highly unusual. But the Greens in the parliament succeeded this week in mustering 194 signatures in favour, more than the quarter of MEPs needed to lodge a request for a probe.
Christian and social democrats in the parliament, the two biggest caucuses of centre-right and left, have effectively formed a “grand coalition” behind Juncker and were reluctant to expose the commission chief to too much scrutiny. But dozens of them defected to join the Greens’ campaign, meaning Juncker’s activities are likely to be much more closely examined.
While Juncker has strongly criticised the LuxLeaks revelations, Vestager has welcomed them and said she was looking at the thousands of documents as part of her investigation.
Many of the leaked documents came from PriceWaterhouseCoopers, which has also acted as tax adviser to Amazon. The commission has also obtained similar documents on Luxembourg tax deals from the three other big auditing firms.
Juncker came into office as commission chief at the start of November and was immediately swamped by the Luxleaks scandal. He did not appear in public for a week, but has promised not to interfere with Vestager’s investigation and ordered France’s Pierre Moscovici, the commissioner for economic and financial affairs, to come up with fast-track legislation on automatic information sharing between member states on tax rulings for big companies.
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