This week within the tax space: Amazon’s tax returns spark a debate about tax avoidance

Amazon insists it pays the tax it owes

In 2020, Amazon made 44 billion (US $ 53.3 billion) in sales across Europe and yet the US company did not have to pay corporate income tax in Luxembourg, from where it operates in all EU markets. This is because Amazon EU Sarl is a 1.2 billion loss in Luxembourg.

As a trading platform, Amazon sells goods across the region via Luxembourg, including to key markets such as France, Germany and the UK. However, the loss of the Luxembourg unity resulted in a loss Tax credits of 56 million euros to offset future tax costs when they become profitable. The device also has Stored loss carryforwards of 2.7 billion.

The US company stressed that its international tax strategy was overboard. “Amazon pays all necessary taxes in every country in which we operate,” an Amazon spokesman told the press.

“Corporate tax is based on profits, not revenue, and our profits have remained low given our heavy investments and the fact that retail is a highly competitive, low-margin business,” the spokesman said.

“Since 2010 we have invested well over 78 billion euros in Europe. Much of this investment is in infrastructure, which creates many thousands of new jobs, generates significant local tax revenues and supports European small businesses, ”they added.

Tax directors often find such news frustrating because there is still a significant gap between the writing of tax law and the public perception of corporate tax avoidance. This means that companies can be denounced in the media even though their tax behavior is legal.

It might seem like another headline about tax avoidance, but the story hit a nerve because COVID-19 saw online traders make a fortune. This story is a reminder of why the OECD is looking for an international solution to taxing the digital economy.

This week’s top stories include:

The EU’s carbon limit could trigger taxes worldwide

The US shift to the first pillar is an opportunity for “tax peace,” says Saint-Amans

How COVID-19 is affecting VAT and GST trends

Tax authorities come for cryptocurrencies

Colombia’s tax revolt

It is not often that anti-tax reform protests break out and yet Colombia has had anti-tax demonstrations for almost 10 days. People are protesting against tax measures they see as regressive given the economic impact of COVID-19.

Colombian President Iván Duque is pursuing tax reform to secure Colombia’s investment grade amid the dire effects of the COVID-19 pandemic. The country is facing a rising deficit and a shrinking economy.

Duque has ambitions to reclaim billions of dollars in revenue lost through tax exemptions, particularly VAT exemptions, which cost the government $ 20 billion annually. A lack of tax reforms could cause Colombia to drop to junk status with credit agencies like Fitch Ratings and Moody’s.

However, the response from some Colombian taxpayers has been to take to the streets and even argue with the police in cities like Cali. The government saw its finance minister resign this week in response. The Colombian tax reform may be postponed or dropped.

Carbon limit

Multinational companies (MNEs) could face problems in the supply chain and an increased compliance burden if the EU Carbon Limit Adjustment Mechanism (CBAM) is introduced as planned in summer 2021. The carbon limit is also likely to spark a wave of carbon taxes from countries that want to protect domestic industries and maintain their tax base.

“If the UK fails to coordinate or keep pace with the EU’s political rigor on industrial sectors, there is a risk that key UK exports will be penalized by the CBAM,” said researchers at the London School of Economics.

Instead of allowing key exports to be taxed at the EU border, tax authorities could try to improve environmental rules and tax professionals expect carbon taxes to be part of any regulatory changes.

“If the EU-CBAM steps in and doesn’t exclude low-income countries, African governments will have a choice between taxing carbon and increasing their revenues themselves or taxing carbon through the EU,” said Arun Advani, assistant professor at the Department of Economics at Warwick University.

“This will be an additional step towards taxing carbon domestically,” added Advani.

An EU carbon limit is becoming more likely as carbon prices rise and industry support for CBAM increases. In March, the steel and mining company ArcelorMittal called for a CBAM, as the industry fears that rising prices under the EU Emissions Trading System (ETS) will put European companies at a disadvantage compared to international competitors.

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Next week in ITR

ITR will delve deeply into multinationals moving warehousing from the UK to EU member states after Brexit to avoid double tariffs. The days of Great Britain as a European distribution center could be behind it.

In the meantime, the UK government is considering changes to the TP documentation requirements. HM Revenue and Customs (HMRC) could increase the compliance burden on companies. Fortunately for multinational companies, the impact shouldn’t hit large companies as hard as their smaller counterparts.

Readers can expect ITR to continue reporting on the OECD’s two-pillar plans for digital tax reform. Next week, ITR will examine the impact of the second pillar on developing countries around the world.

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