Recent regulatory filings show that the American e-commerce giant Amazon.com Inc.'s (AMZN, Financial) operation center in Germany had earned $11.9 billion from sales to German customers in 2014 but paid just a fraction of it which amounted to 11.9 million euros in taxes last year. It has been revealed that Amazon handled sales and profits in the U.K., Germany, Spain and Italy through transactions from companies in Luxembourg where the internet retailer enjoyed a special subsidized tax arrangement. Amid widespread criticism for tax avoidance policies by big multinationals like Google Inc. (GOOG, Financial) and Apple Inc. (AAPL, Financial), the European Union has begun extensive investigations into negotiated tax agreements by global companies with nations like Ireland, Luxembourg and the Netherlands which can amount to unlawful state benefits and mislead competition.
Following the preliminary findings in January of a formal review of Amazon’s Luxembourg deals by the European Union’s executive arm European Commission, the leading online retailer announced in an official statement on May 26, a change in its accounting methodology with sales in the U.K., Spain, Italy and Germany now being registered through subsidiaries of Amazon EU Sarl, its primary retail body in Europe in the respective locations by paying local tax rates affective from May 1.
Amazon and its Europe operations
The annual reports of the Seattle-based largest internet based retailer in America, Amazon.com Inc. shows Germany as its biggest market out of the American continent with Amazon.de GmbH, Amazon’s German outfit, managing orders and oversees deliveries through its website and EU’s report shows that these transactions were backed by Luxembourg companies at subsidised rates.
Revelation since late April shows that European sales in 2013 accounted for 14% of Amazon’s total revenue in Europe of $15 billion with the tax deal with Luxembourg that was signed in 2003 lessening its cumulative tax liabilities in Europe by a staggering 31.8%.
While announcing a change in its European tax-filing procedure with future accounting in individual nations with talks of a new branch opening soon in France, an Amazon.de spokesperson justified the low taxes as a function of low profit margins and not revenues in the heavily competitive e-commerce industry. Tax experts greeted the new arrangement predicting possibility of higher tax payments with greater transparency in the coming years as the final impact of the new accounting system is unclear as of now and may put the earlier tax filings and rates like the 47.8% recorded as the effective tax rate in the last quarter of 2014 , into perspective.
Other Global giants also under EU scanner
The retail giant is not alone, overseas operations of major technology multinationals like internet giant Google and IT major Apple have been fighting widespread allegations of regulatory violations, antitrust lawsuits and accusations of availing unlawful preferences over local competitors in Europe. In separate investigations, the vigilant European Commission is examining Apple’s tax transactions in Ireland, leading Coffee chain Starbuck’s (SBUX, Financial) finances in Netherlands and Italian automobile manufacturer Fiat’s (FCAU, Financial) liaisons in Luxembourg. Apple stated that ,if the EU investigations found evidence supporting the claims of illegitimate government support by Ireland, then the company may have to pay substantial amounts in back taxes and fines. Individual countries have also realized the possibility of companies diverting profits overseas with Britain levying a special "Google tax" of 25% from this year on multinationals that record their U.K. profits in other countries.
With a revenue hungry European Union tightening its scrutiny policy, the overseas operations of these multinationals could see similar changes as presented by Amazon’s change in strategy.
