Last Wednesday, the European Commission announced it would chase after US tech giant Amazon for unpaid taxes to Luxembourg for a period reaching back to 2006.
The European Commission ordered the US multinational company to pay back close to 300 million dollars plus interest to Luxembourg as part of a region-wide effort by the European Union to curtail tax avoidance and force US companies to pay their fair share in taxes.
As explained by Bloomberg, the American tech company is accused of entering a “cosmetic” agreement with Luxembourg that allowed it to “shift billions of euros to a tax-free unit” and further “enabled a taxable Amazon unit in Luxembourg to collect profits from France, Germany and Britain and then pay exaggerated amounts of deductible royalties to another unit that licenses the group’s intellectual property rights.”
According to the EU’s investigation into these proceedings, Amazon “avoided taxes on 75 percent of the profit from its European sales.”
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Margrethe Vestager, Europe’s Competition Commissioner, said, “Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules.”
“This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others," Vestager added.
Richard Murphy, a tax justice advocate and university professor, approved of the EU’s move to protect its markets.
“The impact of a tax structure can be real, and detrimental to fair competition irrespective of the technical legality of a tax scheme: it is not true that because a tax scheme is legal it is beneficial to society or fair markets,” Murphy said, adding that “there is then an over-arching imperative for the commissioner to act to protect markets.”
Amazon & Luxembourg Challenge State Aid & Tax Avoidance Decision
Both Amazon and Luxembourg were quick to respond to this announcement.
A spokesperson for the American company told Bloomberg in an email that the company has “paid tax in full accordance with both Luxembourg and international tax law” and “will study the commission’s ruling and consider our legal options, including an appeal.”
Following this announcement, Luxembourg’s government also said it plans to appeal this EU decision.
Pierre Gramegna, Luxembourg’s Finance Minister, said, “We do not seem to agree, we considered that there was no state aid on our side, there was no selective advantage that was given to the company we are talking about.”
In a quote to CNBC, Gramegna said the EU’s decision “refers to a period going back to 2006,” and that it doesn’t take into account the fact that “the international and the Luxembourg legal frameworks have substantially evolved.”
“We are going to review all our possibilities and eventually appeal. The decision has not been taken,” he added.
John Cassels, who leads the competition groups for law firm Fieldfisher in the UK, believes the EU is targeting US companies on issues pertaining to illegal state aid because it doesn’t have the power to set a common tax rate for the entire region.
In an interview with Yasmeen Serhan of The Atlantic Monthly, Cassels said, “The member states of course hate this. Ireland wants Apple to stay in Ireland and Luxembourg wants Amazon to stay in Luxembourg, so it’s fair to say in every case the Commission has found against the member state, the member state in question has tried to appeal the decision to the European Court.”
Will the EU’s Actions on State Aid & Tax Avoidance Help the US?
Analysts believe this move against Amazon, combined with the EU’s decision to force Ireland to collect close to 16 billion dollars in back taxes from Apple, will only help bolster US President Donald Trump’s corporate tax plan for the United States.
As one might recall, Donald Trump plans on slashing the country’s corporate tax rate to 20 percent and offer American companies with funds stashed abroad an opportunity to repatriate said funds at a special discounted 10 percent rate.
As succinctly put in a CNBC op-ed by Jake Novak, “The message of the day's news for Amazon, Apple, and just about every other major U.S. corporation is now crystal clear: The days of being able to take advantage of highly favorable corporate rates in Europe are ending, and the exact expiration date could come anytime. They can continue to roll those dice overseas, or get behind the GOP effort to provide them with a reliably low tax rate right here in the good ol' USA.”
“A significantly lowered corporate tax rate will give the Amazons and the Apples of the world new confidence and certainty in their ability to hold on to domestic profits. Not only that, it will also encourage big companies to rethink parking billions overseas in the first place,” Novak concludes.
Any thoughts on the EU’s latest actions against a US multinational company? Let us know in the comments section!