October 8, 2014
All eyes on Luxembourg
by Kirsten Reach
For one of the smallest sovereign nations in Europe, Luxembourg has served as a battleground for ruling dynasties and falling empires. At just 2,586 square kilometers, this scrappy little country has served as a Roman fortress, a castle for the Frankish Kingdom, and a critical piece of the Spanish Road during the Eighty Years’ War. It’s been ruled by the Burgundians, the Hapsburgs, the French, the Netherlands, the Belgians, the Germans, the Frisians, the Saxons, the Franks, the Prussians, and Holland. But not the Bezoses.
The European Union is currently investigating whether Amazon cut tax deals in Luxembourg in 2003 that aren’t offered to other corporations. (Cutting tax deals is cool with the EU as long as every company is offered the same deal. It’s suspected that Amazon wasn’t.)
Tom Fairless of the Wall Street Journal explains:
The European Commission said it was concerned that a 2003 tax deal granted to Amazon in Luxembourg—and still in force—effectively caps the U.S. company’s tax payments in the Grand Duchy. Luxembourg could be required to recover from Amazon any funds that amount to selective state subsidies, which are illegal under EU law.
In a sign that the tax investigation could spread much wider, the commission said Luxembourg had provided it in August with “information on a number of cases” it had requested as part of the same probe, including Amazon. The regulator is already sifting through information from tax deals in Belgium, Ireland, the Netherlands and the U.K.
“It’s all part of the broader changing of the rules,” Professor Sol Picciotto of Lancaster University in the UK told Gasbard Sebag of Bloomberg News. He then cited recent recommendations by the Organization for Economic Cooperation and Development to overhaul the international corporate tax system.
Amazon said last year that it had always been in favor of paying sales tax. Right! Of course. Let’s quickly review a few stores on Amazon’s tax issues, stateside and abroad:
- Amazon UK receives more money in grants than it pays in tax.
- Amazon UK’s tax contributions have been described as “just a joke.”
- ‘Doing an Amazon‘ has been used on the radio to describe tax avoidance.
- Taxes are the main advantage Amazon has over competitors, and studies have shown enforcing tax law is the one way to slow the company’s sales.
- In 2013, the Supreme Court rejected Amazon’s appeal in New York. Twenty states now collect sales tax from Amazon (or will by 2016), including West Virginia, Illinois, Virginia, and North Carolina.
- Japan sees so much money disappearing with Amazon and Kobo, the country is enforcing ebook taxes beginning in 2015.
- Amazon and Apple are both in trouble in Ireland for swerving international tax law. (Starbucks is in trouble in the Netherlands, and Fiat SpA is already in hot water in Luxembourg).
So Amazon likes to push the laws to the limit and wait to be struck down later, but that doesn’t mean Amazon’s automatically guilty in this particular instance. The broader question is, will the EU investigations change Amazon’s exception status in Luxembourg and beyond? Will we start holding Amazon to the same standard as other businesses and collect taxes, here and abroad?
Kirsten Reach was an editor at Melville House.