A study into the complex web of subsidiaries that make up the online retail giant Amazon has found the company takes advantage of generous tax credit schemes in the United States to pay little tax on its international earnings in a scheme co-ordinated through Luxembourg.

The analysis of the financial filings by the multinational and its overseas subsidiaries found that about 75 per cent of Amazon’s international sales are booked in Luxembourg-registered entities.

The study authors accuse Amazon of producing losses largely in its non-EU subsidiaries, which are then used to claim tax credits in the United States, described as a “tax credit arbitrage scheme coordinated through subsidiaries located in Luxembourg”.

“Unfortunately, Amazon’s reporting of its international affairs is perplexing and raises doubts about its tax affairs,” wrote the authors of the study, who are three academics at City, University of London.

“Despite accumulating heavy losses internationally, Amazon also accumulated $17.2 billion(€14.17 bn) of unrepatriated profits in its international segment. It remains a mystery as to how Amazon posted such heavy losses while simultaneously accumulating unrepatriated profits.”

“Amazon appears to create opacity in reporting on purpose and presents data in a confusing manner in order to conceal potential its aggressive tax planning strategy.”

The study, which was commissioned by the Left group in the European Parliament, follows a fresh defeat of the European Commission in court in its attempts to force Amazon to pay more tax by arguing it has sweetheart deals with Luxembourg that violate EU competition law, a strategy echoed in the case against Apple and Ireland.

The study authors accuse the company of reporting its earnings in a deliberately confusing manner to conceal how it reduces its tax liabilities and of using “reporting arbitrage” – choosing jurisdictions according to their reporting requirements in order to keep its finances opaque.

It calls on public authorities to investigate “the simultaneous rise in international losses and unrepatriated profits coordinated through Luxembourg”, and says that Amazon has generated greater untaxed profits than the total amount of taxes it has ever owed.

The study warns that the tactic is likely to be used by other companies beyond Amazon.

“Amazon is unlikely to be alone in pursuing tax credit arbitrage. The authors of this report found evidence that other large American firms may be pursuing a similar strategy and possibly with the encouragement of US government policy,” it reads.

“More importantly, political divisions and sovereign spaces enable constructive opacity in accounting, taxation and corporate governance. As a result, it is impossible to identify the precise amount of tax that is paid or avoided not only by Amazon, but by other MNEs (multinational enterprises) as well.”


“We tend to think of multinational organisations is one single entity. We call them ‘Amazon’, ‘Apple’. There’s no such thing as ‘Amazon’ or ‘Apple’. ‘Amazon’ cannot pay tax, cannot enter into a contract. They are made out of different corporations in different countries, and they have a relationship between them. They build themselves up in such a way that they achieve the most beneficial regulatory outcome. That means taxation, but also rules of governance, rules requiring information to shareholders, the rights of shareholders, the rights of investors. These rules change from one country to another. And organisations can organise themselves in such a way that it’s more beneficial to what they want to achieve with regard to these rules.”

Amazon is not unique, but Amazon is very good at playing that game. That’s what the report tells you. They’re very good at playing that game of arbitrage, not only in taxation, we think also in governance… also in terms of reporting and creating opacity. You also use different rules of reporting as a way of making sure that it’s very difficult to tell what’s going on.


“We think they pay very little, in terms of how much you put your hand in your pocket, and actually pay. And that’s a mystery. We cannot tell from their own data. We don’t know exactly how much they pay. But we know they pay very little.

“Their strategy is very different from the way people think about the way multinational corporations or enterprises don’t pay tax. We tend to think they shift profits from high tax countries to low tax. But Amazon don’t do that necessarily. They do in one part of the world, but their strategy is aimed to take advantage of the very generous tax credit system in the United States. If you show losses internationally, you can take advantage and can deduct it from paying tax. That’s their core strategy.

“We can also see that they have made a lot of money as cash which they are using for real investment, and that’s located in Luxembourg as well. So, they report losses, but they also report that we have a lot of cash, accumulated over the years… We cannot say categorically that this is tax avoidance, but we can say it looks like it. Luxembourg seems to be critical to the whole organisation and the planning.”


“We mapped out the subsidiaries, and our subsidiary-based analysis suggests that most of those losses are created outside of the EU. And they’re created largely by Indian and Chinese subsidiaries. And those subsidiaries have a profile over time of income and expenses that raised doubts in our mind. They raise issues, because there seems to be kind of a constant ratio between income and expenses. If expenses are twice as much, and then you make twice as much profit, the expenses will be four times now. There’s always the same ratio over time, and it’s not one or two years, it’s over ten years. That raised a doubt in our mind about whether the losses that they report are genuine losses.”


“We thought it was a very weak case. The European Union essentially went on a fishing campaign basically asking Amazon for data, information, that Amazon provided them, but they didn’t understand the whole strategy. It’s focused on two entities, which we thought Amazon organized in relation to the entities legally. And the figure of the €250 million fine that the European Union came up with, we couldn’t tell where it came from. How did they come to 250? It wasn’t clear to us. We thought it was a weak case.

“They’ve been looking in the right place, but with the wrong lenses, focusing on only two entities which anyway Amazon changed its structure as they fed them information. They did not look at Amazon as a whole, only two entities and the relationship between them. That was very unfortunate and that’s the weakness of the case. We thought the court was going to throw it. Not because the European Union is incorrect, but because of the way the European Commission approached the case. I think the Commission would be well advised in the future to really rely on a greater level of expertise, draw on expertise in Europe. They need a stronger level of expertise to be able to really pursue this.


“The Apple case was weak. The European case was weak, not because it was incorrect. It was another form of arbitrage very different from Amazon… this is called jurisdictional arbitrage. But taking advantage of rules of gaps between rules and of one country or another, you’re not breaking the law, you’re just taking advantage of gaps. It’s not illegal. Legally from a tax perspective, the case was likely to be thrown out.

Europe looked at it from competition, antitrust, a kind of unfair advantage. If they manage to organise their affairs in such a way they don’t pay tax, and the smaller companies, small businesses, do, then competition is unfair. The principle is correct. But [to win the case] they have to show that in fact this was intentionally created. I thought the European Commission’s approach here was a bit amateurish. I think they’re right. And maybe just by putting pressure in itself, they can make change. But for some reason, they don’t really gather the group of expertise they need in order to seriously address this thing.”

Will the international tax reforms proposed by US president Joe Biden make a difference?

“What Amazon does, Amazon takes advantage, for example, of US tax credits. So Biden’s route on the face of it… it will not affect Amazon at all. On the face of it, it will not be the answer in the case of Amazon, and many other companies who are adopting that particular strategy. It’s a very complex world, and we are talking about some of the best brains in the business, the best lawyers, the best accountants, and the best financiers, working for this company. Looking at rules, regulation. And anybody who thinks that they can come with one rule then everything is solved – it’s not going to be that simple.”

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