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By | Jennifer Baker 16th January 2015 15:28

Amazon's tax deal in Luxembourg BROKE the LAW, says EU

Transfer pricing arrangements at crux of matter

Amazon’s sweetheart tax deal with Luxembourg is illegal, according to the European Commission.

The Commission’s preliminary findings indicate that the deal, struck back in 2003, constitutes illegal state aid.

Since then, Amazon has been paying taxes worth only 4-6 per cent of its operating expenses - an arrangement that the Commish says gave the company an unfair advantage.

Amazon has responded by saying it has said received "no special tax treatment from Luxembourg [and] we are "subject to the same tax laws as other companies operating here [in Luxembourg]", as cited by a UK media outlet. El Reg has yet to hear back from Amazon directly.

Last October the Commission opened a similar case against Ireland’s tax arrangements with Apple. However, there are additional concerns with Amazon’s tax dealing as Luxembourgian tax authorities agreed to limit the tax burden no matter what the profits.

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 sit (usually in the cheapest country), and is allowed under EU law, so long as the internal group prices are in line with market prices.

However, if prices are not, and countries allow such transfer pricing arrangements to let companies pay lower tax, this is deemed illegal state aid.

The Luxembourg decision on how Amazon should be taxed dates back several years and is still in force. However, in Amazon’s case it doesn’t even pay corporation tax, but instead a tax-deductible royalty, which lowers its taxable profits each year.

The Luxembourg Finance Ministry says it is cooperating with the Commission, but denies any wrong-doing. The issue is also embarrassing for Commission President Jean-Claude Juncker, as he was prime minister of the micro-state when the deal was done.

On Wednesday the Greens in the European Parliament gained enough support to launch a probe into the so-called Luxleaks scandal.

If further investigations confirm the suspicions of the Commish, Luxembourg will have to recover the amount deemed to be illegal state aid, which could amount to more than 10 years of unpaid tax. ®

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