EU Says Part Of Amazon's Luxembourg Tax Deal 'Cosmetic'

(Reuters) - Luxembourg took just two weeks to sign off a partly cosmetic deal that allowed Amazon to shift a large part of its European profits to an untaxed entity, according to EU antitrust regulators.

The European Commission, which rules on competition and subsidies in the European Union, announced in October that it had opened an investigation into a tax ruling struck in 2003 and published details of its case on Friday.

The investigation, one of a number into large international companies, focuses on whether Luxembourg broke EU state aid rules by allowing Amazon to operate almost tax-free in Europe.

Such inquiries have raised questions for European Commission President Jean-Claude Juncker, former long-time prime minister of Luxembourg, over his role in the country's tax policies.

The document released on Friday described the online retailer's structure, with a Luxembourg company functioning as the headquarters of its European operations and operator of all its European websites.

The net turnover of that company, which it called LuxOpCo, was 13.6 billion euros ($15.8 billion) in 2013, about a fifth of worldwide sales of $74.5 billion.

The Commission's inquiry centers on the relationship between LuxOpCo, pooling revenue from Amazon's EU websites, and Lux SCS, which received a royalty from LuxOpCo and was not subject to Luxembourg tax.

The report said it had doubts whether the transfer pricing agreed by Luxembourg for Amazon reflected what a prudent independent operator would have accepted under normal market conditions.

RAPID RULING

The Commission further noted that the ruling requested by Amazon was assessed and accepted within just 11 working days.

The presentation of the royalty payment, expressed as a percentage of revenue, seemed to be a "cosmetic arrangement."

"It also follows from the above that Amazon has a financial incentive to exaggerate the amount of the royalty when applying the transfer pricing arrangement approved in the contested tax ruling," the document said.

The tax ruling was still in force more than a decade later in 2014, the Commission's document said, far longer than rulings currently concluded by EU members.

In that decade, Amazon's global business had grown explosively, with sales nearly 15 times higher than in 2003.

The 23-page document, dated Oct. 7 and signed by previous EU Competition Commissioner Joaquin Almunia, concluded that Luxembourg appeared to have given Amazon an unfair advantage.

"The Commission's preliminary view is that the tax ruling of 5 November 2003 by Luxembourg in favor of Amazon constitutes state aid... and the Commission has doubts at this stage as to that ruling's compatibility with the internal market."

The Commission is also investigating the tax arrangements of Italian carmaker Fiat in Luxembourg, Apple in Ireland and Starbucks in the Netherlands.

Current Competition Commissioner Margrethe Vestager has said she wants to reach decisions in the four cases by the second quarter. A recipient of illegal state aid typically has to return the money to the state in question.