Amazon, tax evasion


We examined and commented on Amazon’s global prodigies, in managing Big Data and assaulting physical retail, thanks to Whole Foods’ battering ram. Theambitious alliance with Microsoft to more easily enter our homes was also acknowledged. And here is the missing piece to the U.S. giant’s strategies, tax evasion. Finally ascertained by the European Commission after three years of investigation. (1) The question remains how ethical, if even convenient and affordable, it is to continue to forage this group with our purchases.

Tax evasion and state aid

Luxembourg-whose current president of the European Commission Jean-Claude Juncker was premier for 18 years, from 1995 to 2013-gave Amazon illicit tax benefits of about 250 million euros.

Margrethe Vestager, European Commissioner for Competition, said, ‘Luxembourg granted Amazon illegal tax advantages, resulting in nearly three-quarters of the company’s profits going untaxed. In other words, Amazon has been allowed to pay four times less tax than other local companies subject to the same rules. This is illegal under EU state aid rules. Member states cannot give selective tax advantages to multinationals that they do not give to other companies.’

The very Juncker government in the Grand Duchy of Luxembourg had granted unjustifiable tax aid to Amazon in 2003 and renewed it in 2011. The ecommerce giant was thus able to transfer profits from a company that is taxable in Luxembourg (Amazon EU) to a company that is not (Amazon Europe Holding Technologies).

Three-quarters of the taxes due were thus evaded. By causing harm not only to Luxembourg (and thus to Europe, to whose budgets it contributes), but above all to the competition of other players in the Single Market who strive to compete, offering consumers goods and services as cheaply as possible. In compliance with a system of regulations that is as complex as it gets, whose ultimate recipients are still citizens and workers, public services, and the environment.

Governments are letting big business off the hook when it comes to paying the billions they owe in taxes. This is unsustainable and unfair as taxes are required to fund public services like education and healthcare. When large companies, such as Amazon, don’t pay their fair share of tax, small businesses and citizens end up unjustly footing their bill.

(Aurore Chardonnet, Oxfam EU policy advisor on inequality and tax)

Amazon’s matryoshka system in Europe

The European Commission has shed light on favors reserved by Luxembourg for Amazon’s matryoshka system in the EU. Composed of two Luxembourg-registered companies, wholly owned by the Amazon Group under the control of the U.S. parent company, Inc. The larger matryoshka worked to produce profits that were then poured into the smaller one for the purpose of tax evasion.

The largest matryoshka ‘Amazon EU’-an operating company that employed more than 500 people in 2014-managed the retail trade at every stage, from sourcing from suppliers to delivering products to end buyers. Who, even when they purchased Made in Italy products in Italy with logistics located exclusively in our territory, were registered as customers of the Luxembourg company.

Instead, the smaller matryoshka ‘Amazon Europe Holding Technologies’ collected the tax-free treasury. In the form of a limited partnership-a hollow box with no offices or employees-that figured as an intermediary between the operating company ‘Amazon EU’ and the parent company in the United States. And under the guise of a fictitious ‘cost-sharing agreement’ it collected – through a mechanism of ‘custom inflated’ royalties – the bulk of the profits. (2)

The damage to competition

State aid granted within the EU is subject to scrupulous controls, entrusted to the European Commission. For the specific purpose of preventing member states from granting certain public and private entities tax (or other) treatments that may unduly benefit them, to the detriment of competition.

In the case at hand, the Commission declared the illegality of Luxembourg’s tax concession, which had authorized payment mechanisms-from the operating company (large matryoshka) to the holding company (small matryoshka)-in a manner that was inconsistent with economic reality. (3)

The method approved by the tax ruling reduced the operating company’s taxable profits to a quarter of their true volume. Nearly three-quarters of Amazon’s profits were improperly attributed to the holding company that could not be taxed. In fact, the ruling allowed Amazon to avoid taxes on three-quarters of the profits generated by its EU sales.

(European Commission, press release 4.10.17)

Taxable income transfers from the large matrioska to the small matrioska averaged more than 90 percent of the former’s operating profits, and were far greater than what the European holding company would have paid to the parent company in the U.S. In any case, matrioskina ‘didnot, and could not, carry out any activities that could justify the royalty amounts received.’ (4)

Amazon protracted the use of this system in Europe for eight years, from 2006 to 2014, until it changed the way it operated in Europe. The new facility has not yet been investigated by the commission.

Think twice before you buy!

Dario Dongo


(1) See European Commission press release 4.10.17, See also the Financial Times commentary, at Oxfam’s glossy comments, at https://www.oxfam.or g/en/pressroom/react ions/amazons-prime-t ax-deal-luxembourg-o ffered-online-retail er-massive-unfair

(2) In fact, tax law in Luxembourg exempts limited partnerships from income tax. Instead, subjecting to it individual shareholders, who in Amazon’s case have so far deferred settling their accounts, according to European Commission reports

(3) On the other hand, payments between companies belonging to the same group must be consistent with agreements that might intervene, on market terms between independent companies (according to the so-called arm’s length principle)

(4) See press release referred to in Note 1, final part.


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Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.