EU Is Set to Order Payment Of Back Taxes by Amazon -- WSJ
October 04 2017 - 3:02AM
Dow Jones News
By Natalia Drozdiak and Sam Schechner
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 4, 2017).
BRUSSELS -- The European Union's antitrust regulator is set to
order Luxembourg to retrieve roughly several hundreds of millions
of euros in allegedly unpaid taxes from Amazon.com Inc. as soon as
Wednesday, according to people familiar with the matter.
The decision would come amid a renewed crackdown by the EU,
which has promised to scrutinize tax arrangements between its
various member states and big multinationals operating in
Europe.
Regulators in Brussels have homed in on sweetheart tax deals
that governments have issued to large multinationals in allegedly
illegal state aid. Last August, the European Commission ordered
Apple Inc. to repay Ireland EUR13 billion ($15 billion) in what it
said was uncollected taxes, a ruling both Apple and Ireland are
contesting.
U.S. officials under former President Barack Obama sharply
criticized the EU's so-called state-aid investigations, arguing the
moves undermine international tax norms. The EU's latest decision
would come as Republicans are working on U.S. rules that would
prevent companies from pushing more profits abroad, which can be
relatively easy for technology and pharmaceutical companies to do
by putting intangible assets in low-tax countries.
For the EU, Luxembourg's tax practices in particular came under
the spotlight after leaked documents revealed details of hundreds
of highly favorable deals it has granted to companies including
PepsiCo Inc. and FedEx Corp.
Since the Apple decision, Amazon has stood out as one of the
largest targets under investigation by the EU.
The commission is also continuing to investigate Luxembourg's
tax treatment of McDonald's Corp. and Engie SA.
The commission first opened its formal probe into Amazon's tax
arrangements with Luxembourg in October 2014, arguing that a 2003
deal between the two effectively caps the U.S. company's tax
payments in the Grand Duchy. The deal was part of a series of
transactions known at Amazon as Project Goldcrest.
Central to the case is a royalty fee, estimated at about EUR500
million annually, which Amazon EU Sarl -- Amazon's European
operating headquarters at the time of the case -- paid to a
Luxembourg parent company. The royalty, for use of the group's
intellectual property rights, reduced Amazon's tax bill in the
country because the Luxembourg parent is a partnership that wasn't
subject to local corporate tax.
Between 2006 and 2013, the years that specific structure was in
operation, the untaxed Luxembourg parent collected EUR3.39 billion
($3.98 billion) in income "related to royalties from affiliated
undertakings," or "based on agreements with affiliated companies,"
and reported EUR1.89 billion in untaxed profit, according to
company filings in Luxembourg. That could translate into hundreds
of millions of euros in tax liability, according to experts in
European state-aid cases, The Wall Street Journal reported last
year.
When the commission filed its formal probe in 2014. it
questioned the methodology used to calculate that royalty, which it
described as "cosmetic," and said Luxembourg's tax calculations
didn't appear to comply with international guidelines. Luxembourg's
authorities may not have properly assessed the 2003 deal given they
approved it within "a very short period" of 11 working days, the
regulator said at the time.
Amazon and Luxembourg's government say the company received no
special treatment. Luxembourg has argued that the Amazon royalty
payments it approved correspond to international norms. Amazon has
said it "pays all the taxes we are required to pay" and that "our
profits have remained low" because of big investments it has made
in Europe.
The regulator's move comes as France, Germany, Italy and Spain
are seeking to convince the bloc's executive body to establish an
"equalization tax" on revenue generated in Europe by digital
companies. It is aimed at reflecting what they believe companies
should be paying in corporate tax.
The Financial Times earlier reported that the EU is expected to
lodge its decision against Amazon on Wednesday.
Congress and President Donald Trump are trying to push through a
tax plan this year that would create a so-called territorial tax
system in the U.S., in which U.S.-based companies could bring back
future foreign profits tax-free. Under current law, U.S. companies
owe the full 35% corporate tax on their world-wide profits but can
defer that second tax until they bring the money home.
--
Richard Rubin 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 02:47 ET (06:47 GMT)
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