How is it possible that most us pay more federal taxes than an online giant like Amazon? In 2017, Amazon reportedly took in $5.6 billion in U.S. profits, while paying ZERO dollars in federal taxes. How do they do it? By a dodgy strategy to make out that they are based in the tax haven of the tiny European nation of Luxembourg.
Luxembourg’s tax system allows hundreds of U.S. corporations to store massive chunks of their business outside their home countries, which cuts billions from tax bills.
“We were never a tax haven,” Luxembourg’s prime minister, Xavier Bettel, told EUobserver last year. The European Union has accused Luxembourg of giving illegal tax breaks to Amazon and has ordered the country to recover $295 million in back taxes from Amazon.
Amazon’s weasel response to the incredible tax news – “Our provision for income taxes in 2017 was lower than in 2016 primarily due to excess tax benefits from stock-based compensation and the provisional favorable effect of the 2017 Tax Act, partially offset by an increase in the proportion of foreign losses for which we may not realize a tax benefit and audit-related developments.”
Newsweek reported that when Amazon’s founder Jeffrey Bezos was deciding where to base his new e-commerce business in 1995, he picked an Indian reservation near San Francisco that would have considerably lowered his tax bill. California nixed that plan.
How did Luxembourg hand one of the world’s largest companies a tax deal that private citizens can only dream of? They created an arrangement with the infamous Jean-Claude Juncker, who was that country’s prime minister between 1995 and 2013, and is now president of the European Commission. The IRS says Juncker met secretly with four senior Amazon tax officials between September 9 and 12, 2003.
In late May last year, Juncker told the European Parliament that he was unable to explain why the Grand Duchy “didn’t want to remove tax secrecy.”
Luxembourg was rocked by scandal following media revelations in late 2014 that exposed how nearly 340 companies secured secret deals that shaved billions of euros from taxes, which were due to be paid elsewhere. The European Parliament slammed Luxembourg for allowing corporations to dodge “tax that could have been used to build schools, hospitals or pay down national debt.”
According to court documents, Amazon hired an economist from the global financial advisory company Deloitte in 2001 to review the various approaches that could be adopted to reduce its taxes. Jocelyn Krabbenschmidt was responsible for implementing a new tax regime through a labyrinth of subsidiaries designed to shift profits into Luxembourg. Amazon dubbed the tax-planning initiative Project Goldcrest.
Project Goldcrest uses a series of complex intercompany contracts to transfer intangible assets – vital software, trademarks and other intellectual property – to one of Amazon’s Luxembourg companies, Amazon Europe Holding Technologies. A separate subsidiary, Amazon EU Sarl, then pays AEHT huge sums every year in royalty fees, reducing the amount of taxable income within the company.
Jack Blum, a leading white-collar defense attorney in the U.S. specializing in money laundering, told Newsweek there is no doubt about the premeditated nature of Amazon’s aggressive tax planning. “It’s a system that is beyond the capacity of governments, or for that matter the public, to really understand, and it allows the corporations tremendous ability to play games and in a way that negates the effectiveness of national tax systems,” he said. “For the most part, this is stuff that is kept in the deepest, darkest recesses of tax courts and corporate vaults, protected by secrecy provisions.”
In January, a study found that more than one in 10 Amazon employees in Ohio rely on Supplemental Nutrition Assistance Program (SNAP) to buy groceries. SNAP is a government program funded – by tax revenue.
So there you go. Now we know why Jeffrey Bezos is always smiling in photos. He’s screwed the U.S. government and we keep him smiling by buying everything from Amazon – while of course paying our own federal taxes.