The 2012 presidential election feels like a distant memory. Even if one remembers it vividly, he or she might’ve tried his or her best to try and forget the months of farcical Republican primaries and the equally frustrating general election debates that followed. One might recall the media frenzy when Mitt Romney’s foreign investments — elusive of U.S. corporate taxes — became part of the over-the-top, 24-hour new cycle of election coverage. Where did the former GOP presidential running mate invest his tax-immune millions? Well, the Cayman Islands and, yes, Luxembourg. In a December report, Reuters looks into how Amazon has saved millions, some say controversially, by minimizing corporate taxes through tax rates in the Grand Duchy.
By Tom Bergin
LUXEMBOURG | Thu Dec 6, 2012 11:08am EST
(Reuters) – In 2005, Amazon rented a historic five-storey building in Luxembourg’s Grund quarter, right at the bottom of a steep rock-walled valley below the old town.
By setting up in Luxembourg, and channelling sales through its units there, the world’s biggest online retailer could minimize corporate taxes.
It was a move with big financial consequences.
Amazon’s Luxembourg arrangements have deprived European governments of hundreds of millions of dollars in tax that it might otherwise have owed, as reported in European newspapers. But a Reuters examination of accounts filed by 25 Amazon units in six countries shows how they also allowed the company to avoid paying more tax in the United States, where the company is based.
In effect, Amazon used inter-company payments to form a tax shield for the group, behind which it has accumulated $2 billion to help finance its expansion.
Amazon revealed last year that the U.S. Internal Revenue Service (IRS) wants $1.5 billion in back taxes. The claim, which Amazon said it would “vigorously contest”, is linked to its foreign subsidiaries and payments made between them.
The issue highlights the way multinationals reduce their taxes by parking intellectual property in tax havens and charging affiliates big fees for using it. Politicians in rich countries are beginning to target such practices, which have been used by other multinationals including Google and Microsoft.
U.S. Senator Carl Levin has called the tactics “gimmickry.” Michael McIntyre, a tax expert at Wayne State University in Michigan, said that while Amazon’s arrangement, and others like it, looked like commercial transactions, they actually only served to reduce taxes.
“The IRS shouldn’t be happy about this,” he said. “It sounds like they’re not.”
Read more here.