Earlier this month, Margrethe Vestager, the chief competition official for the European Commission (EC), announced that Luxembourg will be required to recoup some €250 million (US$293 million) in back taxes plus interest from Amazon.
As you may recall from our coverage in May, Amazon has already been challenged once this year by the European Union. In that instance, the question was most-favored-nation clauses, which the Commission said were forcing publishers to give Amazon unfair advantages in the EU markets.
In this case, the EC is getting at an essential element of the giant retailer’s European business strategies. Under EU law, companies are taxed at the rates of the member country in which they are based. Luxembourg made a tax ruling in 2003 that allowed Amazon to transfer most of its profits to a company exempt from taxation. The EC is claiming that these tax benefits were illegal—resulting in unfair competition by an international tech giant—and is requiring Seattle to pay up.
In her prepared statement, Vestager characterizes the commission’s argument this way: “Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed. 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.”
Both Amazon and Luxembourg may appeal. Amazon’s statement reads, “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.”
Luxembourg made its tax ruling for Amazon in 2003. Amazon adjusted its European operations in June 2014, probably seeing the handwriting on the wall.
Bottom line: The question of how multinational companies pay taxes, especially in the tech sector, has roiled markets for years. As Seth Archer writes at Business Insider, Google was fined $2.7 billion recently in relation to its shopping search results, which were found to favor Google’s own services. And the EC says it will take Ireland to court for not paying some €13 billion (US$15.3 billion) in back taxes from Apple, as ordered, by January. In the UK, where Amazon controls as much as 90 percent of ebook sales, this issue has been highly inflammatory among booksellers and others in the industry. We’ll continue to follow the next moves in Amazon’s European standoff—with interest.
Jane Friedman has spent her entire career working in the publishing industry, with a focus on business reporting and author education. Established in 2015, her newsletter The Bottom Line provides nuanced market intelligence to thousands of authors and industry professionals; in 2023, she was named Publishing Commentator of the Year by Digital Book World.
Jane’s expertise regularly features in major media outlets such as The New York Times, The Atlantic, NPR, The Today Show, Wired, The Guardian, Fox News, and BBC. Her book, The Business of Being a Writer, Second Edition (The University of Chicago Press), is used as a classroom text by many writing and publishing degree programs. She reaches thousands through speaking engagements and workshops at diverse venues worldwide, including NYU’s Advanced Publishing Institute, Frankfurt Book Fair, and numerous MFA programs.
