By Tom Fairless
BRUSSELS-- Amazon.com Inc.'s tax arrangements in Luxembourg may
give the U.S. online retailer an illegal advantage over
competitors, European Union regulators said Friday, marking the
latest phase of a widening crackdown on alleged sweetheart tax
deals for multinationals.
Amazon is one of four companies whose tax affairs are being
scrutinized by the European Commission, the EU's top antitrust
authority, amid concerns that they constituted illegal aid from
governments. Other targets of the investigation include Apple Inc.,
Starbucks Corp. and Fiat SpA, all of which face sizable back-tax
demands if the regulator's suspicions are confirmed.
The probes represent an innovative move by the commission to
combat tax avoidance in the absence of an agreement among the
bloc's 28 governments. The commission has no authority to weigh in
on national tax policies, but is empowered to police EU state-aid
rules that prohibit selective subsidies.
In its preliminary decision Friday, which runs to 23 pages, the
commission said the method that Luxembourg used to calculate taxes
payable by Amazon, established under a 2003 agreement, didn't
appear to comply with international guidelines. Amazon's European
head office, Amazon EU Sarl, is based in Luxembourg and had net
revenue of EUR13.6 billion ($15.82 billion) in 2013.
The commission said it doubted whether Luxembourg's authorities
had properly assessed Amazon's tax liabilities given the 2003 deal
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".
In a statement, Luxembourg said 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."
A spokesman for Amazon said the company had received no special
tax treatment from Luxembourg. "We are subject to the same tax laws
as other companies operating here," he said.
At issue are the prices that multinational companies charge for
goods or services sold by one subsidiary to another, known as
transfer-pricing arrangements. These could be manipulated to allow
companies to shift profits away from high-tax jurisdictions, so
international guidelines require that they be determined at "arm's
length," reflecting transactions that would take place between
independent companies.
The commission questioned an internal royalty fee paid by Amazon
EU Sarl to another Luxembourg subsidiary of Amazon, which has the
effect of reducing Amazon's tax liabilities. The royalty is paid
for the use of intellectual property, but "is not related to
output, sales, or to profit," the regulator said.
"The commission is of the opinion that the Amazon ruling does
not comply with the arm's length principle," it said. It 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.
Luxembourg's tax practices have come under a fierce spotlight in
recent months after leaked documents revealed details of hundreds
of highly favorable deals it has granted to companies including
PepsiCo Inc. and FedEx Corp.
The Grand Duchy had until recently resisted the commission's
requests for tax documents, and was fighting the case in court. But
last month Xavier Bettel, the country's prime minister, agreed to
share information on tax deals secured by multinational companies,
after the commission also asked other EU countries to share their
tax rulings.
Write to Tom Fairless at tom.fairless@wsj.com
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