yesterday by Rochelle Toplensky in Brussels
Brussels is stepping up efforts to make Amazon and Apple pay taxes in Europe, reigniting transatlantic tensions in a wider EU crackdown on avoidance by big multinational companies. Amazon has been ordered to pay about €250m for back taxes in Luxembourg after benefiting from illegal state aid, while the European Commission’s competition watchdog will force Ireland to collect €13bn in taxes owed by Apple by taking the case to the European Court of Justice. Margrethe Vestager, European competition commissioner, said all companies needed to pay their fair share of tax. Essential stories related to this article FT View Tax affairs of American tech groups come under fire International Tax EU efforts to impose heavier taxes on tech giants gather momentum The Big Read EU tax: Tough love for multinationals’ sweetheart deals After a nearly three-year investigation, the commission decided that Amazon benefited from a sweetheart tax deal that granted it almost a decade of illegal state support from Luxembourg, the hub of its European operations. “Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed,” said Ms Vestager. “In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU state aid rules. Member states cannot give selective tax benefits to multinational groups that are not available to others.” In a statement, Luxembourg said: “As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible state aid.” European Commission infographic © European Commission The move comes 14 months after the commission ruled that Apple’s Irish tax arrangements granted it an illegal advantage and ordered Ireland to recover a record €13bn in back taxes. Tired of waiting for payment of that bill, Ms Vestager decided on Wednesday to refer Ireland to the ECJ for failing to implement its 2016 decision. Ireland called the decision “regrettable”. Apple is appealing against the commission’s move. The Apple decision prompted a fierce political backlash from Washington. The commission’s recovery order this week could rekindle transatlantic tensions over Europe’s tax clampdown, just as Washington considers tax reforms that encourage US multinationals to repatriate foreign profits held offshore. US business and Congress reacted with anger to the Apple decision last year, warning it could threaten to undermine foreign investment and potentially prompt retaliation. Tim Cook, Apple’s chief executive, described the commission’s case as “total political crap”. Apple declined to comment on Wednesday’s decision. Ms Vestager ruled that the 2003 tax ruling underpinning Amazon’s European business structure allegedly permitted it to improperly cut taxable European profits by paying intergroup royalties into a non-taxable partnership. Luxembourg and Amazon have long denied any wrongdoing and could appeal the case. Amazon said: “We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law. We will study the commission’s ruling and consider our legal options, including an appeal.”. At the heart of the Amazon case is the company’s Goldcrest project, which restructured its European operations in 2004 and moved its intellectual property, such as software and customer data, into a non-taxable Luxembourg partnership. Luxembourg’s “comfort letter” to Amazon in 2003 introduced an effective cap on the retailer’s profits that could be taxed in Luxembourg, an upper limit Brussels saw as giving Amazon an unfair advantage over rivals. The case against Amazon is the fourth such tax probe launched by the commission since 2013. Decisions have been taken against Apple in Ireland, Starbucks in the Netherlands, and Amazon and Fiat in Luxembourg. Belgium separately was required to recover tax from about 35 companies benefiting from an illicit scheme. Investigators are also nearing the end of inquiries into McDonald’s, the fast-food chain. An investigation is under way into the tax affairs of Engie, the French utility, in Luxembourg. Amazon hit with EU back taxes bill The commission’s moves against Luxembourg for its tax rulings on Amazon and Fiat are awkward as Jean-Claude Juncker, its president, was prime minister of the Grand Duchy from 1995 to 2013. Multinational companies have come under fire since the global financial crisis for shifting profits between subsidiaries to use the differences between countries’ rules to minimise taxes. US corporations held an estimated $1.3tn offshore cash pile at the end of last year, according to Moody’s, the rating agency. Emmanuel Macron, the French president, has been leading a push to create a tax on digital giants based on revenues rather than profits. The commission wants member states to consider four options for increasing the contributions of tech companies. The first, and its clear preference, is a comprehensive reform plan to establish a common corporate tax base. There are also three interim solutions: the French turnover tax, a withholding tax on digital purchases from non-resident providers and a tax on digital advertising revenues.