The Strategist

European Commission Launches Antitrust Investigation against Amazon

06/11/2015 - 14:43

European Commission launches antitrust investigation against Amazon’s businesses in the area of e-books, reports Reuters.

Nic Taylor
Nic Taylor
The office will check contracts between Amazon and publishers. European Commission’s new investigation continues to pressure on the retailer, which had previously been accused of making a deal with Luxembourg government for the grant.

Previously, EU antitrust authorities explained why they consider tax treaties between US corporation Amazon and Luxembourg illegal. The Wall Street Journal (WSJ) and Financial Times (FT) wrote about this with reference to the preliminary report of the European Commission of Inquiry, which started in October 2014. According to the regulator, in 2003, the state tax rules allowed Amazon EU Sarl, the subsidiary of the American corporation in Luxembourg, pay the royalties for intellectual property use to another Amazon company - Amazon Europe Holding Technologies SCS, which has no tax obligations of any Luxembourg or the United States. As a result, it has allowed Amazon to reduce the level of taxable income in the United States. Corporate tax for the Amazon in Luxembourg is less than 1% of the profits.
Internal royalty payment "is not linked to production, sales and profits," WSJ cited the findings of the European Commission. The latter expressed doubts that the tax authorities of Luxembourg have established the correct amount of tax, as the transaction was approved "in a very short period of time" (11 working days). They were also worried that the agreement has not been revised for over 10 years and still remains in force. The preliminary findings of the investigation equate this agreement to the illegal state aid. If this is confirmed, the Commission will require Luxembourg to recover from the Amazon all the back taxes.

Amazon and other stakeholders have a few weeks to respond before making a final decision. In particular, the Luxembourg authorities must explain the nature of the intellectual property regulator royalty were charged, and specify their size in the last 10 years. Luxembourg "is confident about unfounded accusations of state aid in this case". Amazon has not commented on the decision of the regulator.

In 2013, sales of Amazon through its subsidiary in Luxembourg amounted to 13.6 billion euros ($ 15.83 billion at the exchange rate for January 17, 2015), the profit - 28.8 million euros ($ 33.52 million); net sales of the entire company in 2013 amounted to $ 74.452 billion, net profit - $ 274 million.

The investigation against Amazon is part of a wider campaign against tax evasion by transnational companies in Europe.

In May 2015, it was reported that the retailer began to pay tax on profits from sales to German customers directly to the budget of Germany, whereas previously, they were paying it at the place of registration of their company in Luxembourg. The same decision was made in the UK, Spain and Italy. As a result, the amount of taxes that the company has to pay now greatly increased.