November 10, 2014

Leaked documents reveal the extent of Amazon’s tax evasion in Luxembourg

by

Jean-Claude Juncker, potential dingo.

Jean-Claude Juncker, head of the European Commission/potential dingo. Image via Wikipedia.

Luxembourg (unofficial motto: “The Delaware of Europe”) is in the spotlight yet again. In a previous MobyLives piece, we discussed the European Commission’s ongoing probe into Amazon’s tax payments, or lack thereof. Amazon’s European arm, which is incorporated but not actually located in Luxembourg, was suspected of brokering a favorable (and illegal) tax deal with Luxembourg.

A month later, the Commission has some new information to take into account, in the form of thousands of leaked documents that implicate Amazon and a host of other massive multinationals in shady tax dealings. What happens in Luxembourg apparently no longer stays there.

The International Consortium of Investigative Journalists reported the leak, which reveals the secret tax deals of Amazon, FedEx, IKEA, and Pepsi, as well as hundreds of others. The key element of the leak are hundreds of “comfort letters” issued between 2002 and 2010, which are the private tax rulings issued by Luxembourg for its billionaire corporate residents.

The leaked documents reviewed by ICIJ involve deals negotiated by PricewaterhouseCoopers, one of the world’s largest accounting firms, on behalf of hundreds of corporate clients. To qualify the companies for tax relief, the records show, PwC tax advisers helped come up with financial strategies that feature loans among sister companies and other moves designed to shift profits from one part of a corporation to another to reduce or eliminate taxable income.

Let’s get down to it. Amazon pays crumbs for tax in Germany and the UK. This is legal, as we know, because goods sold by Amazon outside of the Grand Duchy of Luxembourg are deemed as fulfillment by a local affiliate, so profits are shuttled and taxed through Luxembourg. What this leak shows is the seamy specifics of Amazon’s tax avoidance, as well as how ridiculously easy it is for any corporation to do the same. Luxembourg tax officials and government have lowered the barrier to entry into this shell game to the point that a single Luxembourg address is claimed by over 1600 companies.

It may just require money and motive to move profits through the tiny country, but the process of doing so is overly complex, and intentionally so. Complexity is the chief tool by which Luxembourg corporations retain so much cash, and The Financial Review digs into the many ways Amazon avoided paying tax. By alternately reporting only a fraction of their profits as income, then transferring funds between subsidiaries in the form of royalty payments and “service fees”, Amazon’s actual profits were ultimately paid to the Luxembourg company, Amazon EU, which then pays next to nothing in tax.

Amazon’s unwillingness to pay taxes (or living wages) in Europe is what lets them grow so quickly, and freeze out competitors so effectively. The European Commission’s investigation was meant to determine if Amazon was receiving preferential tax breaks. This leak has revealed the Commission’s ambition to be lacking.

The rubber stamp tax policy in Luxembourg has allowed Amazon and so many others to get fat behind a scrim of legitimacy by way of bureaucratic obfuscation,. And guess what? The official investigation is being led by the same guy who oversaw that policy!

That’s right; the European Commission is presided over by former Luxembourg prime minister Jean-Claude Juncker. Juncture also served as the country’s finance minister during his time as PM. (It’s a tiny country.) And it was Juncker’s approval as PM that allowed royalties to receive tax-friendly status in Luxembourg. This leak certainly has EU tax payments looking more like a henhouse, and Juncker like a fox (or dingo).

Amazon, meanwhile, has no idea what you’re talking about.

A spokesman for Amazon said the company “has received no special tax treatment from Luxembourg—we are subject to the same tax laws as other companies operating here.”

Juncker’s parroted the same line, as has PriceWaterhouseCoopers, as has every other contemporary manifestation of Mammon in this story. Which is one more dodge, because this is no longer a question of whether or not laws were broken. What this leak validates is the widespread assumption that Luxembourg law isn’t worth the comfort letters it’s printed on, and that the problem is systemic, not specific.

 

Liam O’Brien is the Senior Sales & Marketing Manager at Melville House, and a former bookseller.

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