Amazon Faces Ruling on $300 Million EU Tax Appeal
12 May 2021 - 6:25PM
Dow Jones News
By Sam Schechner
The European Union's second-highest court is set to decide
Wednesday whether to uphold a roughly $300 million tax bill that
the bloc's antitrust officials have said Amazon.com Inc. owes to
Luxembourg.
The decision is a test for Amazon's tax dealings in Europe, but
the stakes are potentially higher for Margrethe Vestager, who is
leading the EU's campaign to curb alleged excesses by some of the
world's largest tech companies, including Amazon, Apple Inc. and
Alphabet Inc.'s Google.
Ms. Vestager, an executive vice president of the European
Commission, the bloc's executive arm, has already been rebuked once
by the same court in a similar case. The General Court overturned
her 2016 order that Ireland must recoup some 13 billion euros,
equivalent to $15.8 billion, in taxes from Apple. Ms. Vestager has
since appealed that case to the Court of Justice, the EU's top
court.
Ms. Vestager's tax cases were among her first big salvos against
tech companies in her role running EU competition enforcement. She
later fined Google three times for alleged abuses of dominance,
which the company is appealing. In recent months, she has also
filed formal antitrust charges against Amazon and Apple for their
treatment of rivals.
Both the Amazon and Apple tax cases are based on a facet of EU
law aimed at creating a level playing field for companies across
the bloc by forbidding governments from granting companies some
types of state aid.
Wednesday's decision could have a significant impact on Ms.
Vestager's efforts to use those rules to go after what she contends
were sweetheart tax deals granted to multinational companies based
in a handful of EU countries, including Luxembourg and Ireland. In
addition to the Amazon and Apple tax cases, Ms. Vestager ordered
tax repayments from companies including Starbucks Corp., Nike Inc.
and Fiat Chrysler, now part of Stellantis NV.
On Wednesday, the General Court is also expected to decide the
appeal from Engie SA, a French state-owned energy company, of the
commission's decision to order Luxembourg to recoup roughly EUR120
million in unpaid taxes. Both of Wednesday's decisions can be
appealed to the Court of Justice.
So far Ms. Vestager's record in tax cases has been mixed. The
General Court sided with Apple and Starbucks in their appeals but
with Ms. Vestager in the case against Fiat.
In the Apple case, the General Court annulled the tax decision,
saying the commission had failed to meet the legal standards in
showing that Apple was illegally given special treatment.
The Amazon case is coming to a head as international talks
aimed, at least in part, at shifting the taxation of big tech
companies are making progress. Those talks, shepherded by the
Organization for Economic Cooperation and Development, had been
bogged down, leading several countries to impose their own
unilateral taxes on big digital companies, including Amazon, over
objections from technology trade groups.
Wednesday's decision concerns a structure Amazon used in Europe
as part of a series of transactions known internally inside the
company as Project Goldcrest, named for Luxembourg's national
bird.
Under the plan, the company funneled all of its e-commerce sales
in the EU through an operating company called Amazon EU SARL. But
that company paid a significant royalty every year to an untaxed
Luxembourg-registered parent called Amazon Europe Holding
Technologies SCS, reducing the operating company's taxable
income.
In its 2017 decision against Amazon, the commission argued that
the company had improperly inflated the royalty to eat up the
operating company's profit. The commission said the way Amazon
calculated its tax base in Luxembourg was based on a 2003 tax deal,
which was prolonged in 2011. The commission ordered Luxembourg to
recoup from Amazon EUR250 million in alleged unpaid taxes over an
eight-year period.
Amazon, which had since changed its tax structure, said at the
time that it "did not receive any special treatment from Luxembourg
and that we paid tax in full accordance with both Luxembourg and
international tax law."
In its appeal, argued in 2020 before the General Court, Amazon
said the commission's decision was riddled with legal and factual
errors, contending that its payments were in keeping with
international tax principles and that Luxembourg's tax rulings
didn't confer an advantage on the e-commerce company. Luxembourg
also appealed.
The U.S. Internal Revenue Service, for its part, had also sought
as much as $1.5 billion in additional taxes from Amazon over the
same set of transactions, but a U.S. tax court sided with Amazon in
2017, ruling that the IRS had made arbitrary determinations and
abused its discretion in several instances. A U.S. appeals court
later upheld that decision.
Write to Sam Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
May 12, 2021 04:10 ET (08:10 GMT)
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