(October 7, 2014)
Updated on October 8, 2014
On October 7, 2014 the European Commission released a press release in which it announces it has opened an in-depth investigation to examine whether the decision by Luxembourg's tax authorities with regard to the corporate income tax to be paid by Amazon in Luxembourg complies with the EU rules on state aid.
The European Commission states that tax rulings on transfer pricing arrangements may involve state aid within the meaning of EU rules if they are used to provide selective advantages to a specific company or group of companies. Indeed, prices for intra-group transactions have to be correctly estimated based on market prices. If this is not the case groups of companies could have the possibility to underestimate their taxable profit, whereas other companies which buy and sell goods or services from the market rather than within the group would be disadvantaged. This may constitute state aid within the meaning of EU rules.
The tax ruling in favour of Amazon under investigation dates back to 2003 and is still in force. It 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 this royalty, which lowers the taxable profits of Amazon EU Sàrl each year, might not be in line with market conditions. The Commission has concerns that the ruling could underestimate the taxable profits of Amazon EU Sàrl, 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 Commission will now continue investigating to determine whether its concerns are confirmed.
In the press release the European Commission states that Luxembourg did not fully comply with the Commission's request for information as part of its information gathering exercise in relation to tax ruling practices in some Member States but only provided a limited sample. In June 2014 the Commission therefore initiated infringement proceedings against Luxembourg by issuing letters of formal notice. Although, according to the European Commission, the Luxembourgish authorities have still not fully complied with the Commission's information request, in August 2014 Luxembourg did provide information on a number of cases requested by the Commission, including Amazon.
For further information click here to be forwarded to the press release as issued by the European Commission in this respect.
Update: Click here to be forwarded to the reaction of the Luxembourg Government, as published on the website of the Luxembourg Ministry of Finance, which will open in a new window.
Copyright – internationaltaxplaza.info
