Europe’s outgoing competition commissioner, Joaquin Almunia, confirmed on Tuesday that he has launched an investigation into Amazon’s tax dealings in Luxembourg despite his imminent departure of his post.
Almunia, who is due to leave office at the end of this month when his replacement, Margrethe Vestager, comes in, recently opened a similar case probing Ireland’s tax arrangements with Apple.
However, he said that there were additional concerns with Amazon’s tax dealings. “Luxembourgish tax authorities agreed to limit the tax burden no matter what the profits,” he said.
At the heart of the matter are transfer pricing arrangements. These are the prices one subsidiary of a corporate group charges another subsidiary of the same group for goods or services. This practice is used to orchestrate where a group’s taxable profits will lie (usually in the cheapest country). This is permissible under EU law, as long as the internal group prices are in line with market prices. However, if they are not, and countries permit such transfer pricing arrangements to allow companies to pay lower tax, this could be deemed illegal state aid.
The Luxembourgish decision on how Amazon should be taxed dates back to 2003 and is still in force. However, in Amazon’s case it doesn’t even pay corporation tax, but instead a tax-deductible royalty. Almunia claimed there were grounds to suspect that the amount of this royalty, which lowers the taxable profits of Amazon each year, might not be in line with market conditions. “If these initial doubts are confirmed, it is extremely unfair on other companies,” he added.
When asked why it had taken 11 years for the Commission to investigate, Almunia was evasive. “If I could have opened 5,000 investigations on my first day, I would be superman. I gathered the information. I cannot improvise or anticipate the analysis that is on my desk,” said Almunia.
He added that although he has held his position for five years, he only decided to look at whether these tax deals constitute state aid some months ago. This has led to accusations that he is only launching the probes for political reasons.
However, he pointed out that the Commission will continue to investigate regardless of who is in charge. ®