Tax avoidance schemes investigators are examining Amazon’s business practices in the EU. This follows investigations into fellow American corporations Apple Inc., and Starbucks, which have limited their tax exposures despite generating significant profits from their extensive trading activities in Europe. The EU’s executive is trying to to prevent companies from avoiding taxes by shifting profits to subsidiaries in one specific country where they can benefit from very low tax rates. Amazon is understood to register its profits from the EU at its business in Luxembourg and these profits are further reduced by it making royalty payments to another Luxembourg based entity which has no requirement to pay corporation tax. The result is that Amazon pays very little tax in the countries in which it actually operates and instead enjoys a very low rate on the income deemed to be taxable in Luxembourg.
Some 40 per cent of all Amazon sales are transacted outside of the USA but no one is clear on what percentage of the estimated $30 billion of international sales is generated in Europe. It is understood that the Commission is reviewing a tax deal struck by Amazon with the Luxembourg government in 2003 which may be illegal under EU law on the basis that it provides the online giant with an unfair advantage over local tax-paying competitors. A ruling could see Amazon required to pay all of the taxes it has avoided in Europe. Other countries which have offered multinational businesses similarly generous concessions, like Ireland and Switzerland, may also now come under scrutiny.
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