UK and International Tax news

EC Opens State Aid Investigation Into Amazon In Luxembourg

Wednesday 8th October 2014

The European Commission has opened an in-depth investigation to examine whether the decision by Luxembourg’s tax authorities with regard to the corporate income tax payable by Amazon in Luxembourg complies with the EU rules on state aid.

The opening of the investigation gives interested third parties and the Member State concerned an opportunity to submit comments. It does not prejudge the outcome of the investigation.

The Luxembourg tax authority’s ruling in favour of Amazon dates back to 2003 and is still in force. It applies to Amazon’s subsidiary Amazon EU Sarl, which accounts for most of Amazon’s European profits. Based on a methodology set by the tax ruling, Amazon EU Sarl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation.  As a result, most of the European profits of Amazon are not taxed in Luxembourg.

At this stage, the EC considers that the amount of this royalty, which lowers the taxable profits of Amazon EU Sarl each year, might not be in line with market conditions. The EC has concerns that the ruling could underestimate the taxable profits of the company and thereby grant an economic advantage to Amazon by allowing the group to pay less tax than other companies whose profits are allocated in line with market terms. The EC will now continue investigating to determine whether its concerns are confirmed.

Luxembourg did not fully comply with the EC’s previous request for information as part of its information gathering exercise in relation to tax ruling practices in some Member States and only provided a limited sample. In June 2014 the EC initiated infringement proceedings against Luxembourg by issuing letters of formal notice.

Although the Luxembourg authorities have still not fully complied with the EC’s information request, Luxembourg did provide more information in August 2014 on a number of cases requested by the EC, including Amazon.

In our last International Tax News item, we noted that that the EC had released its findings in two cases of state aid investiogations involving Apple in Ireland and Fiat in Luxembourg.

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