Amazon took a huge risk – and now it could be in financial hot water. Seven years ago, the world’s largest retailer rented a massive five story building in Luxembourg. One might think it rented the building for storage or perhaps even a training facility. But one would be wrong.
Amazon, through this Luxembourg address, has been routing sales through there with the goal of reducing the corporate taxes it pays. Now, both Europe and the U.S. are considering their respective options as news emerges the savings are in the billions of dollars. It’s alleged the company was able to bypass paying all of those pesky taxes in both countries. The company disclosed a year ago that the IRS was knocking at the door, ready to collect $1.5 billion in back taxes.
Lower Taxes
As it was explained, the company used “inter-company payments to form a tax shield for the group, which it has accumulated $2 billion to help finance its expansion.” While these drastic measures aren’t the norm, it does reveal much about the way multinationals are able to keep their taxes lower by storing intellectual property in a bevy of tax shelters while also charging its affiliates substantial fees. At least one politician, U.S. Senator Carl Levin, says it’s “gimmicky”.
The IRS shouldn’t be happy about this. It sounds like they’re not.
While Amazon is the largest retailer in the world, it wasn’t always like that. In fact, when it was founded in 1995, the company lost money every quarter for nearly a decade. That said, company officials said it wasn’t uncommon in those early days, especially for an online entity. Still, it was down by $1 billion in just four short years. The losses were massive, which provided a tax break. Soon, though, the digital retailer began seeing those red numbers turn green. It knew, though, it had to carefully consider its next move and that next move was halfway around the world in a small country named Luxembourg. In June, 2003, company officials traveled to the European country, set up housekeeping in a building that’s neighbor is the local train depot.
Changing the Rules
A few weeks later it changed the rules it played by in the UK and announced all relative contracts would no longer filter through the U.S. One year after that, it established another office in Luxembourg with the purpose of “holding” shares while also gaining access to intellectual property rights, patents and other licenses.
Finding out the details is next to impossible. The company, if it has its way, will never be forced to bring those details public. One CEO, Tom Szkutak said the decision was applicable only to a few operating assets that would result in at least $58 million saved in taxes. When it was all said and done and had Amazon paid all of those various taxes in the states along with other corporate taxes, analysts have said it would have ultimately resulted in more than $700 million in taxes.
A 1997 law, “check the box”, allowed businesses to bypass the IRS and these types of payments are considered taxable dividends under our country’s tax codes. Efforts are being made to close that loophole, too. It could be too late, though, since Amazon is now referring to the warehouse as the nerve center of the company and that it provides “tens of thousands” of jobs in that country, though only 300 jobs have been confirmed. Not that it matters to U.S. consumers, who would be happy to see those 300 jobs be filled right here in the U.S.
Wal Mart Factor
Does this put Amazon on the same track as retail giant Wal Mart? After all, Wal Mart has seen its share of unhappy consumers and workers. This is likely to affect Amazon no more than striking workers affected Black Friday for Wal Mart shoppers. Meanwhile, it continues to enjoy those massive tax breaks; well, until the Internal Revenue Service makes its move, anyway. It’s already owned up to the fact that the IRS wanted $1.5 billion in unpaid taxes, yet it’s not disclosed the details other than confirming it’s due to “transfer pricing with our foreign subsidiaries” over a seven-year period from 2005. It said at the time,
We disagree with the proposed adjustments and intend to vigorously contest them. If we are not able to resolve these proposed adjustments…we plan to pursue all available administrative and, if necessary, judicial remedies.
In an ironic twist, Amazon has backed former Mississippi Governor in recent months with his push for taxing online sales. Amazon has said it fully supports taxing its shoppers for their purchases, Kindle products and music downloads.
So what are your thoughts? Is it time these American conglomerates first, begin taking care of business in a more ethical way and second, is it time to bring jobs back home? Should the IRS push harder to get the company to own up to its actions?
Similar News
- Europe to Blame for Weak U.S. Job Growth?
- Dimon Will Testify in Senate on Massive Loss
- AMEX to Begin Issuing Secure Chip Cards
- Unemployment Filings Up by 2,000
- FDIC Investigating Banks Offering Payday Loans
- FTC Warns of Prepaid Card Scams
- What Are Parent PLUS Loans?