By Natalia Drozdiak and Sam Schechner
BRUSSELS--The European Union on Wednesday upped the stakes in
its push to collect taxes from U.S. tech giants, pressing its cases
against Amazon.com Inc. and Apple Inc.
The European Commission, the bloc's antitrust regulator, ordered
Luxembourg to recoup EUR250 million ($294 million) from Amazon in
allegedly unpaid taxes over an eight-year period, which would be
one of the largest-ever tax recoveries under EU state-aid
rules.
The EU said Luxembourg had granted the e-commerce giant illegal
state aid in the form of a 2003 sweetheart tax deal, which was
prolonged in 2011, that illegally lowered Amazon's tax payments to
the Grand Duchy, disadvantaging rivals that paid more.
The regulator also referred Ireland to the bloc's highest court,
the European Court of Justice, for failing to implement its order
last year that Dublin retrieve roughly EUR13 billion from Apple in
uncollected taxes. The regulator had said Dublin's illegal tax
benefits allowed Apple to avoid paying that money, which the
government was supposed to recover by early January.
The decisions are part of a broader effort by the EU to wring
more money out of technology giants in Europe through various
means. In addition to the Apple decision, the EU is now considering
potential legislative proposals to force large digital companies,
such as Google Inc. and Facebook Inc., to pay more tax in
Europe.
"Companies must pay their fair share of taxes," said EU
antitrust chief Margrethe Vestager at a press conference. "Amazon
was allowed to pay four times less tax than other local companies
subject to the same national tax rules."
"We believe that Amazon did not receive any special treatment
from Luxembourg and that we paid tax in full accordance with both
Luxembourg and international tax law," an Amazon spokesman said in
response. Amazon added that it would consider an appeal.
Luxembourg said it took note of the decision, adding that Amazon
hadn't been granted incompatible aid because it had been taxed in
accordance with the tax rules applicable at the time.
Both Amazon and Luxembourg can appeal the decision.
Wednesday's decision concerns a structure Amazon set up in
Europe between 2006 and mid-2014, part of a series of transactions
known as Project Goldcrest.
Under the plan, the company funneled all of its e-commerce sales
in the EU--totaling EUR61.59 billion between 2006 and 2013,
according to Luxembourg corporate filings--through an operating
company called Amazon EU Sarl. But that company paid a significant
royalty every year to an untaxed Luxembourg-registered parent
called Amazon Europe Holding Technologies SCS, reducing the
operating company's taxable income.
According to company filings in Luxembourg, the untaxed parent
took in EUR3.39 billion in income "related to royalties from
affiliated undertakings," or "based on agreements with affiliated
companies," and reported EUR1.71 billion in untaxed profit between
2006 and 2013.
The EU says Amazon had improperly inflated the royalty to eat up
nearly all of the operating company's profit after expenses such as
paying for its merchandise. Ms. Vestager said the parent company
was "an empty shell" with no employees.
The amount of the tax the EU says is due in Luxembourg could
change depending on the outcome of litigation in the U.S., Ms.
Vestager said.
The U.S. Internal Revenue Service had sought as much as $1.5
billion in additional taxes from Amazon over the same set of
transactions, which could reduce its liability in Europe, but a tax
court in March sided with Amazon, ruling that the IRS had made
arbitrary determinations and abused its discretion in several
instances. Ms. Vestager said Wednesday that the IRS was planning to
appeal.
An IRS spokesman declined to comment.
Some critics allege that the EU is picking on high-profile
American companies given that a swath of multinationals around the
world use similar tax structures to reduce their tax bills. Tech
executives say that the frequency of similar tax arrangements
undercuts the contention that these agreements are rare and
therefore unfair to competitors.
The EU's antitrust regulator says it has scrutinized thousands
of tax deals between governments and large multinationals and has
opened formal investigations into a cluster of them. The
highest-profile cases have centered on large U.S. tech giants, but
they also include McDonald's Corp. and French energy company Engie
SA.
In her announcement of the EU's decision to refer Ireland to
court, Ms. Vestager said, "More than one year after the commission
adopted this decision, Ireland has still not recovered the money,
also not in part."
Both Ireland and Apple are appealing the EU's decision announced
last year. The implementation of the decision has been partly held
up as both Ireland and Apple negotiate over the terms of a deal to
protect Dublin from any losses while it holds the company's dues in
an escrow account while the appeal plays out.
"It is extremely regrettable that the commission has taken this
action, especially in relation to a case with such a large scale
recovery amount, " Ireland's Finance Ministry said in a statement.
"Ireland has made significant progress on this complex issue and is
close to the establishment of an escrow fund."
Apple said it is continuing to cooperate with Ireland on the
tax-recovery process.
In addition to the EU's antitrust regulator's scrutiny of tax
deals, France and Germany and other EU countries are pushing to
change legislation. The countries want to better account for the
revenue tech companies rake in from virtual operations, such as
targeted advertising.
Richard Rubin in Washington contributed to this article.
Write to Natalia Drozdiak at natalia.drozdiak@wsj.com and Sam
Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
October 04, 2017 10:58 ET (14:58 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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