Billion-dollar tax shield of Amazon

Dec 07 2012, 10:37 IST
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SummaryIn 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.

to license the Amazon technology it would use to sell things.

There was just one problem: Amazon Europe Holding Technologies had no technology to license. Amazon’s patents — including the Amazon brand and its ‘1-click’ ordering software — were held by Amazon Technologies Inc, a unit registered in Nevada. In early 2005, Amazon did an inter-company deal that solved this problem.

Details of the arrangement have never been made public. CFO Tom Szkutak told analysts on a conference call a few weeks afterwards that the deal to create the Luxembourg operation involved shifting “certain operating assets” offshore and that it would boost the group’s 2005 tax bill by $58 million but “beneficially impact our effective tax rate over time”.

Amazon’s Luxembourg arrangements have helped it pay an average tax rate of 5.3% on overseas income over the past five years, less than a quarter of the average rate across its foreign markets.

Company accounts show that since 2005, Amazon Europe Holding Technologies started to make payments to Amazon Technologies Inc in Nevada of up to 230 million euros ($300 million) each year. At the same time it received up to 583 million euros each year from its European affiliates.

The difference stayed in Luxembourg. Had Amazon remitted all that to the US and then paid the headline US corporate income tax rate on it, the firm would have incurred taxes of more than $700 million. But it has not and the deal has allowed Amazon’s Luxembourg unit to accrue tax-free cash worth more than $2 billion.

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