Amazon's tax strategies may have met their match in Europe at last

Amazon has managed to sweep aside all who challenge its dominance as the online retailer of choice across much of Europe.

But the US giant could be about to meet its match as it comes up against the European Commission’s latest cause célèbre – “sweetheart” tax deals.

Earlier this week the EU’s competition commissioner, Joaquin Alumia, said he would be looking into a deal made between Amazon and Luxembourg in 2003 over a complex payment system that helps the retailer reduce its tax bill to next to nothing.

Richard Murphy, a campaigner and director of Tax Research UK, believes Mr Alumia’s interest in Amazon is a turning point in the debate around tax deals and criticism made over multinationals not paying their “fair share” of tax. He said: “It is the most serious threat Amazon has faced in Europe and it is a serious step change in the challenge.

“Many of us have said there were problems with companies like Amazon and the level of tax they paid. As a result there was a massive effort from Amazon, the tax profession and others to push this issue aside.

“Now though, the issue has gone beyond campaigners and is being taken seriously by the EU commissioners who have the power to impose heavy fines – that’s when it becomes serious.

“This will make them [multinationals] more wary of looking for tax deals.”

The EU cannot act on taxes without unanimity from all members, so with deals under scrutiny in Ireland and Luxembourg in particular, any change is certain to fail.

However, Brussels can look into so-called “soft law” agreements, usually signed up to under EU treaties.

In this case, Mr Alumia is investigating whether fair competition is being upheld within Luxembourg. He will try to establish if Luxembourg gave Amazon a lower tax rate than that offered to other companies – which would be in breach of EU rules and would be considered as “state aid” – which the EU has been able to claw back since 2003.

Mr Murphy said: “National authorities must not allow selected companies to understate their taxable profits by using favourable calculation methods.

“It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies.”

Currently, all European purchases on Amazon are technically made through its Luxembourg subsidiary, where a royalty is paid to a limited liability partnership in the Grand Duchy, although not taxed there.

The commission is particularly keen on looking into Luxembourg’s affairs after ministers there withheld information requested, until they were was forced to reveal the companies they had dealt with.

Mr Murphy is convinced the decision to focus attention on Amazon was not coincidental. Similar investigations are taking place into the relationships between EU countries and Apple, Starbucks and Fiat.

He said: “I don’t think it’s by chance that they’ve picked on consumer-facing names that people have heard of. They are not being subtle about this. It is a deliberate way of saying, ‘we’re not going to put up with companies and countries which will play fast and loose with the level playing field in place.’”

Both Amazon and Luxembourg reject all the accusations and say no “sweetheart” deal was ever agreed.

But campaigners say they have both been given a bloody nose, and hope this will at least lead to more transparency and openness from some of the world’s biggest companies, and some of the more secretive EU countries when it comes to doing business across the continent.

It is not quite the investigation some had hoped for, to shine a light on how Amazon can bank £4.3bn in UK sales but pay just £4.2m in UK tax, but many see it as a step in the right direction.

Supreme Court case: US workers kept late

The US Supreme Court is questioning whether workers at Amazon.com’s warehouses must be paid for time spent undergoing post-shift security searches in a case that will shape the power of employers over hourly workers.

Hearing arguments this week, the justices suggested they are divided on the workers’ contention that federal law requires compensation for time spent in security lines.

Amazon, the world’s No 2 online retailer by market capitalisation after Alibaba, has built a reputation for selling goods at low prices and delivering them quickly and inexpensively, with tiny margins.

That success rides on the company’s network of massive warehouses – more than 40 so-called fulfilment centres in the US alone, according to the company, staffed by 40,000 workers, a number that swells to 110,000 during the holiday season.

The suit, filed by former workers in two Nevada warehouses against a company that staffs Amazon’s facilities, underscores the tension between employers seeking to minimise costs and workers who may suffer the consequences.

While companies use the screening to guard against theft, employees say what’s being taken is their own time, for Amazon’s benefit. The suit before the high court was filed by former employees of Integrity Staffing Solutions, which provides temporary workers for Amazon.

Integrity’s lawyer, Paul Clement, said the security screenings are “materially similar” to the process of checking out at the end of a work day, something that long-standing US Labour Department regulations say isn’t compensable.

Employees, however, argue that workers having to spend as much as 25 minutes after their shifts waiting to pass through metal detectors.

Ultimately, Amazon and various staffing agencies it uses could be required to pay as many as 400,000 workers back wages amounting to $100m or more, according to plaintiffs’ attorneys.

The case may affect several pending lawsuits. Apple, CVS Health, JC Penney, TJX and Ross Stores are all battling similar cases involving either distribution centre or stores. Similar claims are also being pressed directly against Amazon.

© Bloomberg