The European Commission continues to investigate tax status of multinational companies in its states. Now it has widened its activities, launching a formal investigation to find out whether Amazon’s complex tax arrangements in Luxembourg are so generous as to amount to state aid for the $146bn group.

The Commission investigates a local tax ruling secured 11 years ago by online retailer Amazon’s main European operating subsidiary, Amazon EU Sarl. This subsidiary takes sales from all over Europe. The Luxembourg 2003 tax ruling clears Amazon EU Sarl to pay large royalties to a sister operation, thus depressing its taxable profits. In the meantime, that sister entity is a Luxembourg LLP, but is not subject to Luxembourg tax. In other words, the Commission pointed out that most European profits of the online retailer are recorded in Luxembourg but are not taxed there.

This is why the Commission decided to launch an investigation, considering that the amount of this royalty might not be in line with market conditions. The representatives of the Commission confirmed that the investigation will now test these concerns further, and the outcome of its investigation claimed to have not been prejudged.

In the meantime, the American multinational company, headed by Jeff Bezos, denied the charge, claiming that Amazon has received no special tax treatment from Luxembourg and pointing out that it is subject to the same tax laws as other companies operating there.

In response, the local finance minister claimed that Luxembourg is confident the allegations of state aid in this case are unsubstantiated. He also pointed out he was sure that the investigation of the European Commission would conclude that no special tax treatment or advantage has been awarded to the online retailer.

In the meantime, the Spanish politician Joaquín Almunia, a current head of competition policy at the European Commission, claimed that according to the EU law, national authorities can’t allow selected entities to understate their taxable profits by using favorable calculation methods. Joaquín Almunia emphasized that subsidiaries of multinational companies should fairly pay their share of taxes and not receive preferential treatment, which could amount to hidden subsidies.

Industry experts remind that Amazon’s tax arrangements have long been under scrutiny in the European Union. For example, six months ago, Margaret Hodge in the UK, the Labour head of the Commons’ public accounts committee, called for a boycott of Amazon after revealing that the online retailer paid as little as £4.2m in tax in the country last year.

The financial analysts explain that since corporation taxes are largely determined by profit rather than revenue, heavy reinvestment filters down to the corporate tax bill. The reports reveal that over the past 4 years, the amount of tax Amazon has paid in the United States has dropped three times, as has the amount of profit it reports – almost 5 times, even as its revenue has more than doubled.

As it was mentioned above, Amazon was not the first company to be investigated over its tax arrangements in the European Union. It is also known that the European Commission has already launched 3 other state aid investigations into the tax treatment of large multinationals, including Starbucks in the Netherlands, Apple in Ireland, and Fiat Finance and Trade in Luxembourg.

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