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E.U., Citing Amazon and Apple, Tells Nations to Collect Tax
By JAMES KANTEROCT. 4, 2017
BRUSSELS — Europe’s competition chief said on Wednesday that she was taking Ireland to court over the country’s failure to collect a huge bill for back taxes from Apple, as officials from the Continent mounted a push against alleged abuses of regional tax rules by Silicon Valley giants.
The move by Margrethe Vestager, the European Union’s competition commissioner, came as regulators ordered Luxembourg to collect around 250 million euros, or about $293 million, in unpaid taxes from Amazon, the online retail behemoth. The European Union is also considering proposals aimed at increasing the amount of tax paid by technology companies.
The efforts amount to a concerted campaign to revamp how taxes are collected in the 28-nation bloc. They are part of an array of moves by officials in Europe to flex their regulatory muscles over the United States technology sector, including penalties for antitrust violations and investigations into mishandling of customer data.
Critics say, however, that the measures are evidence that the European Union unfairly targets American technology companies. Officials from the bloc deny those claims.
In the latest move, Ms. Vestager ordered Luxembourg to reclaim back taxes from Amazon linked to an agreement between the country and the retailer that the European Commission, the bloc’s executive arm, said dated to 2003.
The case carries parallels with a similar move by the commission last year, when it directed Ireland to reclaim around $15.2 billion from Apple.
Ireland fears such a decision could make it a less attractive place for multinational companies. In a sign of the disquiet in Dublin about that order, the Irish government failed to meet a January deadline to collect the money. It has appealed the ruling.
That earned Ireland a forceful rebuke from Ms. Vestager.
“More than one year after the commission adopted this decision, Ireland has still not recovered the money,” she said. “Member states need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the E.U. court for failing to implement our decision.”
At the time of the ruling, Europe’s competition watchdogs said that Apple’s arrangements with Dublin were illegal and had ensured the iPhone maker paid virtually nothing on its European business in some years. Brussels argued that the deals allowed Apple to funnel profit from two Irish subsidiaries to an office in which it had “no employees, no premises, no real activities.”
The Irish Department of Finance said that it “has never accepted the commission’s analysis” in the Apple case and that it was taken aback by Ms. Vestager’s decision to take the country to court. The department said it had “made significant progress on this complex issue” and accused the European authorities of taking a “wholly unnecessary step.”
Apple did not immediately comment on the latest move, but has criticized the ruling in the past. The original decision has also drawn the ire of the United States Treasury Department.
In the case of Amazon, the commission said that Luxembourg had conferred “an advantage on Amazon,” one that the company “obtained every year” and that was “granted in a selective manner.” That arrangement essentially capped the amount of tax that the retailer paid, and relied on a method known as transfer pricing.
Typically, transfer pricing has been used by companies to assign revenues and profits to different business units depending on their location, role in the overall company and assets. But that system is harder to police with technology companies because many of their biggest assets, like intellectual property, are intangible. The European Commission said that Amazon had abused this system by sending most of its European revenue to a Luxembourg subsidiary that was not liable to pay corporate tax, helping the company cut its overall bill.
Amazon and Luxembourg have denied the charges.
“We believe that Amazon did not receive any special treatment from Luxembourg,” the company said in a statement on Wednesday, adding that it “paid tax in full accordance with both Luxembourg and international tax law.”
Amazon said it would study the commission’s ruling and was considering whether to appeal.
In a statement, Luxembourg’s finance ministry also contested Ms. Vestager’s ruling. “As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible state aid,” it said.
It is not illegal in the European Union for member states to attempt to lure businesses by lowering corporate tax rates. But, as with Amazon’s agreement with Luxembourg, offering special deals to individual companies that are not made available to rivals can amount to “illegal state aid.”
The investigations are among several in which commission officials have looked into the affairs of Silicon Valley companies. Regulators in Brussels are challenging Google and Qualcomm over alleged antitrust violations, and officials in various countries have investigated Facebook over its handling of customers’ data.
Ms. Vestager has made tax a priority of her term as Europe’s competition commissioner. In that time, she has penalized Starbucks in the Netherlands and Anheuser-Busch InBev in Belgium. But Luxembourg has been a particular target: In 2015, she told the country to claw back about €30 million from a Fiat Chrysler unit, while a case considering Luxembourg’s treatment of McDonald’s is also continuing.
The European Union stepped up efforts to curb tax avoidance by companies and by individuals after the financial crisis, which forced many of the bloc’s member states to cut public services and raise tax rates.
But opponents of the austerity programs argued that big corporations were able to shift their profits to low-tax countries, leaving citizens and smaller businesses to shoulder much of the burden.
A broader overhaul may be afoot. The European Commission published proposals last month to tax internet companies in the countries where they generate business. Such a shift would mean the companies could not move profits to jurisdictions with lower taxes.