Amazon has seen outstanding growth in its major European market of Germany. This happens to be Amazons biggest market outside of North America. As reported in the annual statement, all profits from Germany were taxed as a Luxembourg company, where taxes are much less. The profits can be taxed under this Luxembourg company because Amazon funds its German website Amazon.de through it. In 2014 as regulatory filings show, the German unit made $11.9 billion in sales and only paying out $16 million in taxes.
After seeing the 2014 taxes that Amazon had paid, The E.U. started to put pressures on Amazon to change the way they track revenues for its European division. A spokesman for Amazon has confirmed that as of May 1 the practices will be changed. Under the E.U’s Single Market Legislation Amazon is doing everything legal but is hurting local retailers native to the countries. As Amazon is not the only company to come under attacks from the E.U. it is the only one who has taken actions to change its reporting. Amazon will start paying an increase in taxes to several European countries it does business in, instead of just having all of its profits flow to the Luxembourg company. This change could have a large increase in Amazons European taxes from here on out.
Reason for Compliance
There may be many factors to why Amazon would comply with the E.U over the tax matters, but the main reason maybe that in April, Britain was in talks to introduce a new law that could affect Amazons profits. Under this law, also known as the “Google Tax,” companies that divert their profits to shell corporations will have be scrutinized and potentially investigated for avoiding taxes. This term may also be known as “Double Irish,” where companies hold a subsidiary company in a country where taxes are much lower. Companies such as Amazon (AMZN: NASDAQ), Apple (AAPL: NASDAQ), and Google (GOOG: NASDAQ) part take in this activity. Amazon has repsponded in the past to why such activities took place: “Corporate tax is based on profits, not revenues. E-commerce is a low-margin business and highly competitive, and Amazon continues to invest heavily around the world, which means our profits are low.”
Shares of the internet retail giant Amazon.com are lower by 0.33% to $426.20 in pre-market trading on Tuesday, May 26 2015.