Amazon's German tax bill of €3m prompts call for investigation

http://www.guardian.co.uk/technology/2013/jul/12/amazon-german-tax-bill-call-investigation

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Amazon's main German unit paid income tax of just €3m (£2.6m) in 2012 after the group channelled sales to German clients of $8.7bn (£5.75bn) via Luxembourg, prompting one lawmaker to call for an investigation of the company.

Accounts for Amazon.de GmbH filed with Germany's companies register show that the company reported profit of just €10m for 2012, taxed at a German rate of 30%.

Germany is Amazon's largest non-US market and represents a third of its overseas sales, but the vast bulk of that German cash ends up ultimately at the Luxembourg-registered Amazon Europe Holding Technologies, which reported profits of €118m but, as a tax-exempt partnership, paid no income tax.

Amazon declined requests to comment but has previously said it follows the tax rules in all the countries where it operates.

All companies seek to reduce their tax bills and have a duty to steward their assets effectively, tax lawyers say.

"Managers have a fiduciary duty to get the best return for their shareholders, and tax is a part of that," said Laurence Field, tax partner at Crowe Clark Whitehill LLP.

Even so, the lengths to which some companies go to avoid tax has put the issue at the top of the political agenda in the past year.

Sven Giegold, member of the European parliament with Germany's Green party, said the low profits declared and taxes paid by Amazon in Germany showed the need for a tougher approach on the part of the German authorities.

"I am outraged," he said. "We have to use much stronger means to ensure the profit cannot be moved out of the country," he added.

Amazon minimises its tax bills across Europe by having customers transact with a Luxembourg company Amazon EU Sarl when they click the purchase button on European websites. French, German and other European units are designated as providers of non-business-critical services to Amazon EU Sarl.

This means that Amazon.de GmbH does not receive revenue from sales to users of the Amazon.de website but instead receives enough money from Amazon EU Sarl to cover its costs and generate a small profit.

Amazon says it operates a single European business with all strategic functions conducted from its Luxembourg headquarters. This employs around 300 people, while the units in its main European markets employ tens of thousands.

While Amazon EU Sarl receives all the cash from European sales – €12bn in 2012 – it made a profit of under €30m and paid tax of just €8m.

This is because it pays large sums to its parent, Amazon Europe Holding Technologies, to use Amazon group technology, company filings and evidence presented in the US tax court show.

The difference between what Amazon Europe Holding Technologies charges for these rights and the amount it pays to the US affiliates that develop the technology is significant and has allowed the tax-exempt partnership to build up a cash pile of $2bn over the past decade.