Amazon.com’s main German unit paid income tax of just e3 million (R39m) last year after the group channelled sales of $8.7 billion (R87bn) via Luxembourg units.
Accounts for Amazon.de filed with Germany’s companies register show that the company reported profit of just e10m for last year, which was taxed at the headline German rate of 30 percent.
Germany is Amazon’s largest non-US market and represents a third of its overseas sales, but the vast bulk of that cash ends up in Amazon Europe Holding Technologies, which is registered in Luxembourg and reported profit of e118m but, as a tax-exempt partnership, paid no income tax.
Amazon declined requests to comment but has previously said that it followed the tax rules in all the countries in which it operated.
All companies sought to reduce their tax bills and had a duty to steward their assets effectively, tax lawyers said.
“Managers have a fiduciary duty to get the best return for their shareholders, and tax is a part of that,” said Laurence Field, a tax partner at Crowe Clark Whitehill.
Even so, the lengths to which some go to avoid tax has put the issue at the top of the political agenda in the past year.
Citizens bearing the brunt of the financial crisis have been angered at revelations that some companies have created elaborate networks of subsidiaries whose chief purpose is to siphon profits out of countries where their economic activity occurs and into tax havens where they have little or no physical presence.
At a meeting of the Group of 20 (G20) group of leading economies in November last year, German Finance Minister Wolfgang Schaeuble teamed up with his British counterpart, George Osborne, to push for changes in the international rules that allow companies to shift profits.
Amazon has also been criticised in other countries for its low tax bills.
It is not alone in facing criticism for its tax arrangements. Others, including web search leader Google and iPhone maker Apple, have come under fire for similar methods to move profits to jurisdictions where they will pay less tax. Both say they follow tax rules wherever they operate.
Sven Giegold, a member of the European Parliament with Germany’s Green Party, said the low profits declared and taxes paid by Amazon in Germany showed the need for a tougher approach on the part of the German authorities.
“I am outraged,” he said. “We have to use much stronger means to ensure the profit cannot be moved out of the country,” he added.
Giegold said he planned to write to Schaeuble to ask him to investigate the matter to see if any rules had been broken.
“It’s not enough to make a speech at the G20 and then be inactive on extreme cases [of avoidance],” he said.
Amazon minimises its tax bills across Europe by having customers transact with a Luxembourg company, Amazon EU, when they click the purchase button on European websites.
French, German and other European units are designated as providers of non-business-critical services to Amazon EU.
This means that Amazon.de does not receive revenue from sales to users of the Amazon.de website but instead receives enough money from Amazon EU to cover its costs and generate a small profit.
Amazon said it operated a single European business with all strategic functions conducted from its Luxembourg headquarters. This employs about 300 people, while the units in its main European markets employ tens of thousands.
A Reuters examination of job advertisements and employee profiles on website LinkedIn earlier this year showed that staff in the UK, German and French units managed all aspects of the supply chain from identifying new products to sell, negotiating with suppliers, deciding pricing policies and designing websites.
While Amazon EU receives all the cash from European sales – e12 billion in 2012 – it made a profit of less than e30m and paid tax of just e8m.
This is because it pays large sums to its parent, Amazon Europe Holding Technologies, to use Amazon group technology, filings and evidence presented in the US tax court shows.
The difference between what Amazon Europe Holding Technologies charges for these rights and the amount it pays to the US affiliates that develop the technology is significant and has allowed the tax-exempt partnership to build up a cash pile of $2bn over the course of the past 10 years. – Tom Bergin in London for Reuters