By Tom Fairless
BRUSSELS-- Amazon.com Inc.'s tax arrangements in Luxembourg may
violate European Union law and give the U.S. company an illegal
advantage over competitors, EU regulators said Friday, in a
preliminary decision that lays out the rationale for launching a
detailed investigation three months ago.
The probe is part of a broader crackdown on tax avoidance by
multinationals in Europe, where governments are scrambling to shore
up their revenues and assure citizens that everyone is contributing
fairly to crisis-hit budgets. Amazon could be required to pay back
large sums in back taxes if the regulator's suspicions are
confirmed.
The European Commission, the EU's top antitrust authority, said
the method used to calculate taxes under a 2003 deal granted to
Amazon in Luxembourg didn't appear to comply with international
guidelines.
An internal royalty fee, paid from one Luxembourg subsidiary of
Amazon to another for the use of intellectual property, "is not
related to output, sales, or to profit," the regulator said. The
royalty fee has the effect of reducing Amazon's tax liabilities in
Luxembourg.
The commission said it doubted whether Luxembourg's tax
authorities had properly assessed Amazon's tax deal given it was
approved within "a very short period of time." It also expressed
concern that the deal was still in force after more than a decade
"without any revision."
The regulator asked Luxembourg to explain the nature of the
intellectual property for which internal fees are paid, and to
detail the scale of royalties over the past 10 years.
Amazon and other interested parties have several weeks to
provide feedback before the commission announces its final
decision.
Amazon didn't immediately comment on Friday. A spokesman for the
company said in October, when the formal probe was announced, that
the company had received no special tax treatment from Luxembourg.
"We are subject to the same tax laws as other companies operating
here," the spokesman said.
In a statement, Luxembourg said Friday that it was "confident
that the allegations of state aid in this case are unsubstantiated
and that it will be able to convince the Commission in due time of
the legitimacy of the tax ruling."
Write to Tom Fairless at tom.fairless@wsj.com
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