Tax Games: Luxembourg Company Payment to Amazon 'Too High'

The ongoing scandal over the US tech giants Amazon and Apple, which have been ordered by the European Union to repay Luxembourg hundreds of millions of euros in back taxes could complicate the ongoing negotiations over a trade treaty between the EU and the US, a Dutch tax law expert told Radio Sputnik.

Following a three-year investigation, EU Competition Chief Margrethe Vestager accused Luxembourg of giving 250 million euros’ ($294 million) worth of illegal tax benefits to the internet shopping giant. According to the official, almost three quarters of Amazon’s profits were not taxed as a result of the move.

“Amazon's Luxembourg company will pay royalties to the partnership. The partnership is not to be taxed, but people behind it are. By making payments to the partnership, the Luxemburg firm had less taxable profit, while the partnership nor the partners would be taxed for the time being,” Raymond Luja, a professor of comparative tax law at Maastricht University, said in an interview with Radio Sputnik.

Furthermore, it also transpired that the Luxembourg company eventually paid too much to the holding for the use of royalties.

According to the commission’s findings, the payments made to the partnership, which, for the time being, have been exempt from taxation, were too high.

“The EU Commission’s point is that [the] Luxembourg company payment to the holding was too high,” Dr. Luja noted.

The situation is similar to what happened to Ireland, which was referred by Brussels to the EU Court of Justice for failing to collect billions of euros from Apple.

The EU ordered Dublin to collect the taxes back in 2016, after it ruled that the US tech giant had to repay 13 billion euros in Irish back taxes.

Although Ireland claims that the tax was never owed and is appealing the controversial ruling, it is still due to collect it by the start of this year.

Speaking about Washington’s possible reaction to the situation with Amazon, Dr. Luja said that the US may take action to prevent having to compensate for the back taxes paid in the EU.

“Secondly, there are trade negotiations going on between the US and the EU and cases like this are not improving the situation of course,” he added.

The European Commission found that Luxembourg had allowed Amazon to channel a large portion of its profits to a holding company without paying taxes.

The commission said in a statement that its investigation showed that "the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality."

Under EU laws, member states are not allowed to give state aid to certain companies in the form of more beneficial tax treatment compared to other companies.