The European Commission on October 7 announced that it has opened an in-depth investigation into whether Luxembourg granted private rulings to an Amazon subsidiary with too favorable terms, potentially violating EU rules on state aid.
The 2003 tax ruling, which is still in force, sets a methodology for the payment of a tax deductible royalty by Luxembourg-based Amazon EU Sàrl to a related Luxembourg limited liability partnership.
The Commission said that the amount of the royalties “might not be in line with market conditions” thereby underestimating the taxable profits of Amazon EU Sàrl and allowing the group to pay less tax than other companies.
Commission Vice President in charge of competition policy Joaquín Almunia said that the Amazon ruling is unusual because it contains a cap on the tax base. “In other words, Luxembourg’s tax authorities agreed to limit the proportion of Amazon’s turnover that is being taxed in Luxembourg whatever the profit that Amazon is making,” Almunia said in a statement following the announcement.
Almunia said that transfer pricing tax rulings may involve state aid if a member state accepts the remuneration of a subsidiary or a branch that does not correspond to market conditions. In such cases, the state would grant the company selective advantages, he said.
The Amazon announcement follows similar announcements of investigations into transfer pricing rulings concerning Apple in Ireland, Starbucks in the Netherlands, and Fiat Finance and Trade in Luxembourg. The EU is also investigating whether 165 private rulings issued by Gibraltar contain illegal state aid.
See:
Related MNE Tax articles:
