Billion-dollar tax shield of Amazon
Amazon’s first foray abroad came in 1998, when it bought online retailers in Britain and Germany and rebranded them Amazon.co.uk and Amazon.de. In 2000, it launched a French website, Amazon.fr.
At first it did little to integrate these foreign units, former senior executives say.
Even product purchasing — where Amazon would later squeeze huge savings by negotiating hard with suppliers — was handled independently in different markets. But in late 1999, accounts for the UK business show, the UK unit’s principal activity changed from “marketing and selling of books via internet” to “the provision of services to other group undertakings.”
Founded in 1995 and listed two years later, the company lost money every year until 2003. This was standard practice for a dotcom startup: Amazon focused on market share rather than profit.
But by the end of 1999 Amazon’s accumulated losses were over $1 billion.
In 2003, when Amazon started making a lot more profit in the US. There was a chance the foreign earnings would now increase its global tax bill because US corporate tax rates were higher than in other markets such as UK.
Amazon turned to the tiny country of Luxembourg, which offers a variety of advantages. It’s a member of the European Union, so businesses based there can sell across EU borders with less red tape. Then there’s the tax rate.
Luxembourg has a headline charge on corporate income of 29%, but under certain circumstances it will exempt income a
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