Amazon has changed the tax practices of its European arm following the United Kingdom’s clampdown on conglomerates that are shifting their local profits to other countries, according to The Guardian.
While the move would result in a larger tax burden for the e-commerce firm, it would enable Amazon to avoid the UK’s new Diverted Profits Tax. This came into effect last month and imposed an additional 25 per cent tax on companies that artificially channel their earnings elsewhere.
Previously, all of the company’s revenue from Europe was funnelled into its Luxembourg-registered subsidiary Amazon EU Sarl. On 1 May, Amazon’s local units in the UK, Spain, Germany, and Italy started recording their respective earnings.
Another reason that Amazon changed its tax practice was the European Commission’s ongoing investigation into the firm’s tax arrangement with Luxembourg since 2003. In January 2015, the watchdog alleged that this set-up might be infringing on European Union rules as it gives Amazon a price advantage over its rivals.
Similarly, the regulatory body is also investigating Apple’s tax arrangement with Ireland. In that case, it wants to determine if the iPhone maker is allowed to pay a tax rate of less than 2 per cent despite the country’s corporate tax rate being set at 12.5 per cent.
If the European Union rules that this practice is unlawful, the tech giant could be compelled to fork out billions of euros for unpaid taxes over the past ten years.