By Romain Dillet
Another big Internet company is the target of Direction générale des finances – France’s equivalent of the IRS – due to tax noncompliance. The agency is asking Amazon (NASDAQ:AMZN) to pay $252 million (€198 million) in non-reported tax and penalties. Most of Amazon’s revenue in Europe goes to Luxembourg, where the corporate tax is much lower. While it’s legal, there are some subtleties in order to comply with the law.
According to Reuters, the request covers the fiscal years between 2006 and 2010. In a document attached to the latest quarterly earnings, Amazon declared that it’s ready to legally challenge the accusation.
Today in London, according to Reuters, an Amazon representative commented briefly on the French issue. The news comes as European countries are currently tackling the same tax noncompliance issue.
In Amazon’s case, most of the profit is sent to a Luxembourg subsidiary because of corporate tax. As Luxembourg and France are both European Union members, that is perfectly legal. Yet, the company has to prove that the revenue doesn’t come from contracts signed between two French parties — for example, a French customer and Amazon.fr.
Today, Starbucks (NASDAQ:SBUX), Google (NASDAQ:GOOG) and Amazon all had to justify the fact that they pay little to no tax in the UK. On November 1st, we learned that Google France faces a $1.3 billion fine.
Even though European taxation agencies are right to tackle the issue, the problem is much deeper. Instead of trying to catch the guilty companies, the entire tax system in the European Union has to be rethought. If French companies are treated as European companies as is currently the case, they should pay the same corporate tax level across all European countries. It would cut the incentive to send revenue to Ireland, Luxembourg or other tax-friendly countries.