Fiddling the books? EU to investigate Amazon’s tax rates in Luxembourg

Officials from the European Commission have demanded that Luxembourg hand over documents relating to book retailer Amazon’s tax affairs. The crackdown by the EU has already affected Apple, Starbucks and carmaker Fiat’s financial arm.

The European Commission is investigating Amazon to see if its Luxembourg tax base complies with EU state aid rules and to see what kind of relationship exists between the tiny EU country and the bookseller, the Financial Times reports.

The Brussels-based Commission is carrying out fact-finding missions in various EU countries as part of its campaign to clamp down on so-called “sweetheart” tax deals with large companies.

There has already been significant criticism across Europe at Amazon’s tax structure. Evidence has come to light that some multinationals are paying virtually no tax at a time when EU governments have been forced to bring in tough austerity measures to cut state budget deficits.

Amazon is already under the spotlight about questions on its business practices, including harsh working conditions in its warehouses, squeezing suppliers and its role in pushing small high street book retailers into liquidation.

The latest accounts filed by Amazon EU Sarl reveal its sleek tax structure in Luxembourg, which reduced Amazon’s overall tax rate by 8 percent to 31.8 percent.

The investigation into Amazon comes after similar probes into Apple, Starbucks and Fiat Finance and Trade, which are also based in Luxembourg.

The investigations scrutinized the companies’ “transfer pricing” arrangements, which determine how taxable profits are allocated between countries – allowing them to pay significantly less tax.Luxembourg, according to the European Commission, has failed to fully cooperate with their investigation.

EU competition commission Joaquin Almunia is believed to want the investigation to be well under way by the time he leaves office later this year. He also hinted when the probe into the three multinationals began in June that the net could be cast more widely to catch companies pursuing “aggressive” tax avoidance.

“In the current context of tight public budgets, it is particularly important that large multinationals pay their fair share of taxes,” he said.

Apple’s tax affairs stirred disquiet last year after a US Senate committee claimed that by keeping its tax base in Ireland, it allowed the company to apply a corporate tax rate of just 2 percent.

Separately, the Paris based Organization for Economic Cooperation and Development (OECD) is planning to overhaul international tax rules for digital companies.