EU Details Tax Case Against Amazon -- Update

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 [e-mail]

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