Amazon (AMZN) will start paying more taxes in several European countries where it does business, instead of channeling its revenue through a holding company in the low-tax haven of Luxembourg. The online retailer has been under fire for some time from European regulators—as have other large U.S. players such as Google and Apple—for avoiding tax by using this strategy.
The company said that on May 1 it started reporting revenue in Britain, Germany, Italy and Spain, which means it could become liable for tax charges in those countries. And Amazon’s concession to lobbying by European regulators could increase the pressure on its U.S. counterparts to do likewise.
One of the factors that may have played a role in Amazon’s decision is a new law that took effect in Britain in April, aimed at what the government calls “diverted profits.” The measure—often known as the “Google Tax”—applies a 25% levy to corporations who are judged to be avoiding taxes by routing their profits through other countries.
Regulators with the European Commission are also conducting an investigation into whether Amazon and Apple (AAPL) are getting unfair support from countries such as Ireland and Luxembourg (Google channels most of its European revenue through a subsidiary in Ireland). According to The Guardian, Amazon attributed more than $7 billion worth of sales to Britain in 2013, but paid only $6.5 million in tax.
Ireland said recently that it is planning to phase out a tax arrangement known as the “Double Irish,” due to pressure from other European Union members. Often used by tech companies, the tax strategy allows corporations who do business in Ireland to set up a separate Irish subsidiary to handle royalty payments—a subsidiary that is usually based in a different country with either low or non-existent income tax.
Google (GOOG) was publicly chastised for its tax behavior in 2013 by the head of Britain’s public accounts committee, Margaret Hodge. She told one of the company’s European executives that Google’s practices were “devious, calculated and, in my view, unethical.” Hodge’s comments were seen as one of the catalysts for the development of the Google Tax bill.