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Amazon and Corp Tax Reform

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Tax avoidance by multinationals such as Amazon continues to get more expensive. “Brussels will hit Amazon today with a bill for Luxembourg back taxes worth several hundred million euros,” reports the Financial Times. More reason to pass U.S. corporate tax reform and bring that money home.

Brussels will hit Amazon on Wednesday with a bill for Luxembourg back taxes worth several hundred million euros in the latest fallout from the EU crackdown on tax avoidance by big multinationals.

The European Commission’s move, confirmed by several people familiar with the case, comes on the heels of Apple’s record €13bn bill for Irish back taxes last year, which prompted a fierce political backlash from Washington.

Launched almost three years ago, the commission’s investigation alleged that the US online retailer benefited from a sweetheart tax deal that granted it almost a decade of illegal state support from Luxembourg, the hub for its European operations.

The commission’s recovery order could rekindle transatlantic tensions over Europe’s tax clampdown, just as Washington considers White House tax reforms that pave the way for US multinationals to repatriate foreign profits.

US business and Congress reacted with anger to the Apple decision last year, warning it could threaten to undermine foreign investment and potentially prompt retaliation. Tim Cook, Apple’s chief executive, described the commission’s case as “total political crap”.

Margrethe Vestager, the EU competition commission, will on Wednesday challenge a 2003 tax ruling underpinning Amazon’s European business that allegedly permitted it to improperly cut European profits by paying intergroup royalties shielded from taxes. Luxembourg and Amazon have long denied any wrongdoing.

The case against Amazon is the fourth of about half a dozen tax probes launched by the commission since 2013. Decisions have been taken against Apple in Ireland, Starbucks in the Netherlands, and Amazon and Fiat in Luxembourg, while Belgium separately was required to recover tax from about 35 companies benefiting from an illicit scheme.

Investigators are also nearing the end of inquiries into McDonald’s, the fast-food chain. An investigation is ongoing into the tax affairs of Engie, the French utility, in Luxembourg.

The commission’s move on Amazon could prove awkward for Jean-Claude Juncker, its current president, who was prime minister of the Grand Duchy from 1995 to 2013.

At the heart of the Amazon case is the Goldcrest project, which restructured its European operations in 2004 and moved its intellectual property, such as software and customer data, into a non-taxable Luxembourg partnership.

Luxembourg’s “comfort letter” to Amazon in 2003 introduced an effective cap on the retailer’s profits that could be taxed in Luxembourg, an upper limit Brussels saw as giving Amazon an unfair advantage over rivals. The ruling was agreed before Amazon set up its main Luxembourg companies, which is today the hub for its European operations.

A Financial Times analysis of Amazon’s Luxembourg accounts shows that over the next decade, the EU sites paid the partnership nearly €4bn in royalties for using Amazon’s name and know-how. In the same period, Amazon’s European operations reported a total profit of €11m on net turnover of about €60bn.

While Amazon sent about €1bn of those royalties back to the US, where they were taxed, the remaining nearly €3bn was not. A US tax court ruling in March has forced Amazon to restate its European figures and move some of that €3bn stateside to be taxed — a decision that will change how much Luxembourg will be required to recover.

The commission and Amazon declined to comment.

Multinational companies have come under fire since the global financial crisis for shifting profits between subsidiaries to use the gaps between countries to minimise taxes. US corporations held an estimated $1.3tn offshore cash pile at the end of last year, according to rating agency Moody’s.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com