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European Commission


Brussels, 7 October 2014

Statement by Vice President Almunia on opening of in-depth investigation into possible state aid granted by Luxembourg to Amazon

Today the Commission has opened another in-depth investigation into possible state aid granted through a tax advantage to a large multinational: Amazon.

More specifically, this investigation relates to a "tax ruling" issued to Amazon by Luxembourg.

The tax ruling we are investigating here dates back from 2003. However it is still in force, meaning that it is used to determine the tax paid by Amazon in Luxembourg every year.

As in our other ongoing investigations concerning Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg, this tax ruling deals with transfer prices between entities of the same group.

Transfer prices – that is to say, the prices charged for commercial transactions between entities of the same group – determine the basis on which a company is taxed in a given jurisdiction. It is well known that some multinationals are using tax planning strategies, including through transfer pricing arrangements, to reduce their global tax burden, eroding tax bases in EU Member States.

Let me clarify once more that we are not calling into question the general tax system of Luxembourg here. What we want to find out by launching this probe is whether the tax authorities of Luxembourg have been too accommodating to Amazon in applying transfer pricing rules. More precisely, we are looking at whether selective tax advantages have been granted to a particular company.

If in a tax ruling, the authorities of a Member State accept that the remuneration of a subsidiary or a branch does not correspond to market conditions, reflecting normal conditions of competition, then it would mean that this company could be granted a favourable treatment, a "selective" one.

Such a selective treatment would constitute state aid within the meaning of our Treaty rules. And such aid would give these companies an unfair advantage and would distort competition in the Single Market.

The ruling we are looking at concerns Amazon's subsidiary in Luxembourg, which records most of the group's European profits. This company pays a royalty to another entity based in Luxembourg, but not subject to corporate taxation in Luxembourg. Today we observe that through this mechanism most European profits of Amazon are recorded in Luxembourg but are not taxed there. The terms for calculating this royalty are essential. These transfer pricing arrangements are set out in the ruling of 2003 that is the focus of this investigation.

At this stage we consider that the amount of this royalty, which has lowered the taxable profits of Amazon, might not be in line with market conditions. What is unusual is that the tax ruling contains a cap on the tax base: in other words, Luxembourg's tax authorities agreed to limit the tax base of Amazon to a fraction of percentage of the turnover, whatever the profit that Amazon is making.

Amazon is not the only company shifting profits through royalty payments but in this specific case we have doubts that any objective basis has been used to establish how much profit should be taxed in Luxembourg and how much can be left untaxed in the form of a royalty payment.

If it is confirmed that Amazon is granted a favourable treatment based on a 10 year-old tax deal, this would certainly be unfair for companies who do pay taxes on market terms. Such a special advantage would be a clear distortion of competition.

We will now investigate to check whether these initial doubts are confirmed.

Our investigation is carried out in the context of concerted efforts by authorities of the world's major economies to counteract numerous profit shifting and aggressive tax planning practices. To this end, it is in line with the recent agreement of the G20 Finance Ministers on a first set of recommendations to address key areas in the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS).

In a time when public budgets are tight, citizens are asked to make efforts to contribute to consolidation while SMEs and other companies are struggling with a difficult economic environment. In this context it is even more essential to make sure that large multinationals pay their fair share of taxes. These multinationals should not be allowed to leverage their power to negotiate a special treatment with tax authorities. This would be equivalent to granting them hidden subsidies.

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