Brussels targets Amazon’s Luxembourg tax deal

Online retailer probe to follow Apple and Starbucks. Brussels is confronting Luxembourg over an unorthodox Amazon tax deal, alleging it allowed the online retail giant to reap potentially illegal state subsidies for its European operations for almost a decade.

The European Commission is poised to launch a formal in-depth probe into its serious concerns over improper state aid, dragging Amazon into a multi-pronged clampdown on sweetheart tax deals that has already ensnared Apple in Ireland and Starbucks in the Netherlands.

The two Luxembourg cases over Amazon and Fiat are particularly sensitive because Jean-Claude Juncker, the incoming Commission president, was the Grand Duchy’s longtime premier at the time of the deals. All the countries and companies subject to the state aid probes reject any improper arrangements or wrongdoing. The Commission declined to comment.

Investigators believe Luxembourg gave Amazon favourable terms in a 2003 tax ruling, which caps its tax exposure to the Grand Duchy and helps limit its overall bill to less than 1 per cent of the retailer’s European income, according to people briefed on the case.

The expected move by Joaquín Almunia, the outgoing EU competition commissioner, raises further uncomfortable questions for Amazon, a feted ecommerce pioneer, about the extent to which its success has depended on contentious tax policies. Its approach has already come under fire from politicians in the US, UK and France.

In previous statements Amazon said it pays “all applicable taxes in every jurisdiction that it operates within”. It is “vigorously” contesting disputed tax bills in the US and France of $1.5bn and $250m respectively.

Even so, any potential disputes over Amazon’s tax affairs would probably have to take into account its thin profit margins relative to the enormous scale of its operations.

The Commission’s central allegation is that Luxembourg allowed Amazon to misallocate profit within its corporate structure, in a manner that fell short of standards expected of an arms-length transaction between corporate subsidiaries.

This appears to have artificially reduced Amazon’s tax bill on a selective basis, according to people familiar with the initial investigation, a significant state subsidy that Brussels can order Luxembourg to recoup if it is proven to be illegal.

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