The Wall Street Journal reported that from May 1, Amazon.com Inc. AMZN has started booking revenues from retail sales in individual European countries instead of channeling almost all sales via the low-tax haven Luxembourg.
Depending on how Amazon allocates costs, this could radically increase the firm's tax bill in a lot of EU countries.
More importantly, Amazon’s new tax arrangement will likely put a lot of pressure on other U.S tech companies that funnel the bulk of their European revenue via low-tax countries.
In fact, earlier this month, the EU's antitrust chief said that EU regulators would miss a June deadline to decide if the tax deals established by individual member states (like Ireland, Netherlands, Britain) with Amazon and other companies like Apple Inc AAPL and Starbucks Corp SBUX were permissible as they required some more data.
Ireland, for example, has said that it will phase out a tax loophole called the “Double Irish” (this loophole allows companies with operations in Ireland to make royalty payments for intellectual property to a separate Irish-registered subsidiary. This subsidiary, even though incorporated in Ireland, usually has its home in a country that has no corporate income tax).
Google GOOGL has used this loophole to its advantage by limiting the amount of tax it pays on its European operations. Ireland plans to close this loophole entirely by the end of the decade.
According to the New York Times, Britain’s finance minister, George Osborne, has come out with what is widely referred to as Google Tax that imposes a 25% tax on “the local profits of international companies that are perceived to route money unfairly overseas. The new policy came into effect last month.”
Amazon has bowed down to European authorities but whether its competitors will follow suit, only time will tell.
Amazon has a Zacks Rank #3 (Hold).
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