Amazon paid no corporate tax in Europe last year despite record sales income

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The big picture: Amazon’s business is booming worldwide amid the fast adoption of online retail, so it shouldn’t be a surprise that its tax behavior is yet again under the lens of regulators in Europe and the US — its biggest markets. The company has been using various methods to reduce or altogether avoid paying its fair share, but that may prove increasingly difficult soon.

Last month, Amazon reported more than $8 billion in profit for the first three months of 2021, tripling its profits year over year. It’s a financial image that is in stark contrast to that of many other businesses and industries, which have suffered or even succumbed under the pressure of lockdowns and rapid changes in consumer habits over the past twelve months.

The results have impressed shareholders and public investors, but the European Commission isn’t content with how companies like Amazon avoid corporate taxation through various methods. To that end, regulators are readying new tax proposals to be announced in the coming weeks and intended to prevent fraud and tax avoidance.

In 2017, the Commission found that Luxembourg had offered Amazon no less than €250 million (a little over $277 million at the time) in tax advantages between May 2006 and June 2014. it found this incentive unfair as it effectively allowed three-quarters of Amazon’s income for that period to go untaxed. The EU took the case to court, but a definitive ruling on the matter has yet to be reached.

However, in the context of new corporate filings in Luxembourg, public scrutiny on the company’s tax behavior is set to reach new levels. After enjoying record sales income of over €44 billion in 2020 ($52.9 billion) across its operations in Europe, the retail giant paid no corporate tax. It got this break by shifting the money through its Amazon EU Sarl holding in Luxembourg, where it reported a €1.2 billion ($1.44 billion) loss. Amazon was even granted €56 million ($67.3 million) in tax credits it can use to lower future tax bills whenever it turns a profit.

In total, Amazon EU Sarl now has over €2.7 billion in accumulated losses it can use to offset any future tax burden. Furthermore, considering the Luxembourg holding has 5,262 employees, Amazon has made revenues of €8.4 million ($9.85 million) for each one of them for the 2020 fiscal year.

The retail giant says that low margins and significant investments contributed to the 2020 figures. A spokesperson told The Guardian that “corporate tax is based on profits, not revenues.” The rep noted the company has invested “well over €78 billion in Europe since 2010, and much of that investment is in infrastructure that creates many thousands of new jobs, generates significant local tax revenue, and supports small European firms.”

Meanwhile, the OECD is using the pandemic as a catalyst for international tax reform to prevent a tax-driven trade war. In the US, President Joe Biden blasted Amazon and 90 other companies for not paying federal taxes and promised to change that with the announcement of a $1.8 trillion plan to improve the country’s social safety net. Not all American companies agree with an increase in corporate taxation. However, Amazon is among the notable exceptions, mainly because it would have little impact on its bottom line while also funding infrastructure projects that would open new opportunities for its business.

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