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 company earns through intellectual property by up to 80%, a government spokesperson said.
This cuts the effective tax rate to below 6%. Tax advisers and academics say rates close to zero can be achieved using other methods.
In June 2003, Amazon registered Amazon Services Europe SARL in Luxembourg with the initials Societe a Responsabilite Limitee — a limited company, liable for tax.
A month later, it told clients in the UK its terms were changing. Contracts with third-party retailers who used Amazon to sell their products would no longer be handled in the US but with the Luxembourg unit. In June 2004, Amazon established another Luxembourg entity — Amazon Europe Holding Technologies — whose purpose was to hold shares in Amazon group companies and “to acquire ... any intellectual property rights, patents, and trademarks licenses and generally to hold, to license the right to use it solely to one of its direct or indirect wholly owned subsidiaries.”
This group was set up as a “Societe en Commandite Simple” or SCS, a type of limited partnership that a Luxembourg government spokesman said is exempt from income taxes. It has not had any operational staff or premises, its registered address being the offices of a trust