The European Commission has opened an ‘in-depth investigation’ over what it considers to be an ‘unorthodox’ tax deal by Luxembourg with online retailer Amazon. The investigation concerns a ruling dating back to 2003, and which is still in force, that applies to Amazon’s subsidiary Amazon EU Sàrl, which is based in Luxembourg and records most of Amazon’s European profits. Based on a methodology set by the tax ruling, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg. At this stage, the Commission considers that the amount of the royalty might not be in line with market conditions, thus giving Amazon a competitive advantage in the market.
EC vice-president Joaquín Almunia said: ‘National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods. It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies. This investigation concerning tax arrangements for Amazon in Luxembourg adds to our other in-depth investigations launched in June. I welcome that cooperation with Luxembourg has improved significantly.’
EC commissioner for taxation Algirdas Šemeta said: ‘Fair tax competition is fundamental for a healthy single market and our common economic prosperity. As we work together to restore growth and competitiveness, it is essential to tackle the harmful tax practices which erode the tax bases of EU member states. Fair play in taxation must be the rule.’
The EC is already investigating Luxembourg over its tax ruling with Fiat Finance & Trade, and is also investigating tax rulings by Ireland (Apple) and the Netherlands (Starbucks). The Financial Times reported (6 October) that: ‘The two Luxembourg cases over Amazon and Fiat are particularly sensitive because Jean-Claude Juncker, the incoming Commission president, was the grand duchy’s longtime premier at the time of the deals’.
Heather Self (Pinsent Masons) observes that: ‘The tone of the Commission’s [latest] comments relating to Luxembourg is generally harsher, so far, than their statements on Ireland and the Netherlands.’
Separately, the EC has announced an extension to the scope of an ongoing in-depth investigation opened in October 2013 to verify whether the new Gibraltar corporate tax regime selectively favours certain categories of companies, in breach of EU state aid rules. The EC believes the system of tax rulings for companies, introduced by the Gibraltar Income Tax Act 2010, may contain state aid and is extending its investigation of the Gibraltar corporate tax regime to include these rulings.
In a statement, the EC said: ‘The Commission has assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013. Based on the information submitted by the UK authorities, it appears that the Gibraltar tax authorities grant formal tax rulings without performing an adequate evaluation of whether the companies’ income has been accrued in or derived from outside Gibraltar and therefore is exempted from taxation in Gibraltar. Even if the Gibraltar tax authorities are given considerable margin of manoeuvre under the ITA 2010, a misapplication of its provisions cannot be excluded at this stage.
‘The Commission has concerns that potentially all assessed rulings may contain state aid, because none of them are based on sufficient information so as to ensure that the level of taxation of the activities concerned is in line with the tax paid by other companies, which generate income that is to be considered accrued in or derived from Gibraltar.’
The European Commission has opened an ‘in-depth investigation’ over what it considers to be an ‘unorthodox’ tax deal by Luxembourg with online retailer Amazon. The investigation concerns a ruling dating back to 2003, and which is still in force, that applies to Amazon’s subsidiary Amazon EU Sàrl, which is based in Luxembourg and records most of Amazon’s European profits. Based on a methodology set by the tax ruling, Amazon EU Sàrl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation in Luxembourg. As a result, most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg. At this stage, the Commission considers that the amount of the royalty might not be in line with market conditions, thus giving Amazon a competitive advantage in the market.
EC vice-president Joaquín Almunia said: ‘National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods. It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies. This investigation concerning tax arrangements for Amazon in Luxembourg adds to our other in-depth investigations launched in June. I welcome that cooperation with Luxembourg has improved significantly.’
EC commissioner for taxation Algirdas Šemeta said: ‘Fair tax competition is fundamental for a healthy single market and our common economic prosperity. As we work together to restore growth and competitiveness, it is essential to tackle the harmful tax practices which erode the tax bases of EU member states. Fair play in taxation must be the rule.’
The EC is already investigating Luxembourg over its tax ruling with Fiat Finance & Trade, and is also investigating tax rulings by Ireland (Apple) and the Netherlands (Starbucks). The Financial Times reported (6 October) that: ‘The two Luxembourg cases over Amazon and Fiat are particularly sensitive because Jean-Claude Juncker, the incoming Commission president, was the grand duchy’s longtime premier at the time of the deals’.
Heather Self (Pinsent Masons) observes that: ‘The tone of the Commission’s [latest] comments relating to Luxembourg is generally harsher, so far, than their statements on Ireland and the Netherlands.’
Separately, the EC has announced an extension to the scope of an ongoing in-depth investigation opened in October 2013 to verify whether the new Gibraltar corporate tax regime selectively favours certain categories of companies, in breach of EU state aid rules. The EC believes the system of tax rulings for companies, introduced by the Gibraltar Income Tax Act 2010, may contain state aid and is extending its investigation of the Gibraltar corporate tax regime to include these rulings.
In a statement, the EC said: ‘The Commission has assessed 165 tax rulings granted by the Gibraltar tax authorities to different companies in 2011, 2012 and up to August 2013. Based on the information submitted by the UK authorities, it appears that the Gibraltar tax authorities grant formal tax rulings without performing an adequate evaluation of whether the companies’ income has been accrued in or derived from outside Gibraltar and therefore is exempted from taxation in Gibraltar. Even if the Gibraltar tax authorities are given considerable margin of manoeuvre under the ITA 2010, a misapplication of its provisions cannot be excluded at this stage.
‘The Commission has concerns that potentially all assessed rulings may contain state aid, because none of them are based on sufficient information so as to ensure that the level of taxation of the activities concerned is in line with the tax paid by other companies, which generate income that is to be considered accrued in or derived from Gibraltar.’
