Coverage: Amazon to change European tax policies

As most of America is off celebrating the Memorial Day holiday, Amazon is ending its tax break in Europe. The company is changing how it will account for taxes in Europe, instead of putting them through Luxembourg.

The New York Times had these details in a story by Mark Scott:

In the continuing battle between European and American tech companies, score one for Europe.

In a move that could put pressure on its rivals to follow suit, Amazon will start paying taxes in a number of European countries where it has large operations, instead of funneling nearly all its sales through Luxembourg, a low-tax haven that is the home base in the region for Amazon and many other large tech companies.

Several European countries, including Germany and France, have criticized the tax strategies of some American tech companies, including Google, which use complicated structures that sharply reduce the amount of tax they pay in individual European countries.

The European Commission, the executive arm of the European Union, is also investigating whether Apple and Amazon receive unfair state support through low-tax agreements in Ireland and Luxembourg, respectively, where the companies run their European operations.

On May 1, Amazon said that it had started reporting revenue from its operations in Britain, Germany, Italy and Spain. By altering how it reports its revenue, the online retailer may become liable for larger tax charges in certain nations, though it may still be able to reduce its tax burden through other complex accounting practices.

The Guardian story by Simon Bowers detailed the changes that Amazon will make in order to be compliant with new regulations:

From the start of this month the online retailer has started booking its sales through the UK, meaning resulting profits will be taxed by HMRC. The group made $8.3bn (£5.3bn) of worldwide sales from British online shoppers but for 11 years all these internet transactions have been booked in Luxembourg.

A spokesman said Amazon was “now recording retail sales made to customers in the UK through the UK branch. Previously, these sales were recorded in Luxembourg”.

The move will allow Amazon to avoid being caught by chancellor George Osborne’s new diverted profits tax, which came into law from April. It imposes a punitive 25% tax on groups deemed to be artificially routing profits overseas.

Amazon had for years denied that its UK corporate structures were artificial or tax-motivated. The move will be greeted as a victory for the chancellor who last September singled his determination to rein in technology firms going to extraordinary lengths to avoid UK tax. “You are welcome here in Britain with open arms,” he said.

Lisa Fleisher and Sam Schechner wrote for The Wall Street Journal that the move could also mean that other large tech companies will have to change their practices:

A number of tax savings structures by multinationals operating within Europe are now under greater scrutiny. The EU has opened several probes of tax deals between companies, including Amazon, and individual EU countries.

EU regulators investigating Amazon said in January they believed the tax structure in Luxembourg could provide an illegal and unfair advantage over competitors.

The probe is one of several into the tax structures of companies such as Apple Inc. and Starbucks Corp. Representatives for the companies involved have said they didn’t receive special treatment.

Amazon is also under pressure from other probes in Brussels, including an antitrust inquiry into e-commerce and an investigation into online platforms.

Individual countries have also started agitating for more tax to be paid within their borders.

Sam Forgione wrote for Reuters that antitrust regulators have been looking into the issue since last year:

European Union antitrust regulators opened an investigation into Amazon’s tax-minimizing arrangements with Luxembourg in October. The investigation focuses on whether Luxembourg broke EU state aid rules by agreeing to a deal which allows Amazon to operate almost tax-free in Europe.

The EU’s antitrust chief said earlier this month that EU regulators would miss a June deadline to decide whether the tax deals granted by individual member states to Amazon and other companies such as Apple Inc and Starbucks Corp were legal because they lacked some data.

Luxembourg has faced international criticism following media revelations in November based on leaked documents, dubbed “LuxLeaks,” that detailed its role in helping companies channel profits through the country and pay low tax rates rather than higher rates in states where they did more business.

The Financial Times story by Vanessa Houlder reported that sales continue to rise for Amazon, making this lucrative for the U.K.:

In 2013 Amazon.co.uk, which runs the warehouses used to deliver goods in Britain, reported pre-tax profits of £17.1m on turnover of £449.1m, representing services it provides to other group companies. Sales funnelled through Amazon’s main European operating company in Luxembourg rose 14 per cent to €15.5bn in 2014, according to its latest accounts.

Amazon is under formal investigation by Brussels over rulings made by the Luxembourg tax authority. It is also fighting a $250m tax dispute with the French tax authorities and a $1.5bn dispute with the US tax authorities.

The move is a solid one for U.K.’s regulator, increasing tax income and shutting down practices that obviously hurt the country’s income. It’s a tough blow for Amazon, which continues to invest heavily and show smaller-than-expected profits for investors.