LUXEMBOURG (CN) — Arguing Thursday before the European Union’s second-highest court, Amazon fought claims that it dodged taxes in a scheme with a James Bond-worthy nickname.
The retail giant is fighting a 250 million euro ($277 million) tax bill from Brussels, which argues that the tiny European country of Luxembourg gave Amazon a sweetheart tax deal in a secret arrangement called Project Goldcrest.
“We are in the dark as to what justification the commission has for its allegations,” Denis Waelbroeck of international law firm Ashurst said on behalf of Luxembourg in his opening statement at the Luxembourg-based European General Court.
The European Commission, the EU’s cabinet body, launched an investigation into the Seattle-based company in 2014. It concluded that the tax arrangement allowed Amazon to shift profits from one subsidiary to another, allowing the company to reduce its European profits and thus its tax liability.
“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed,” the EU’s competition commissioner Margrethe Vestager said in an October 2017 statement.
The commission has been aggressively challenging advantageous tax deals across the 27-member political and economic union in an effort to prevent member states from undercutting one another. It wants carmaker Fiat to pay Luxembourg a $33 million tax penalty, in a case that the General Court upheld last year. It also wants Starbucks to pay the same amount to the Netherlands, in a case the commission lost but can appeal, and Apple to pay Ireland a whopping $14.3 billion in a case that is ongoing.
The Amazon tax scheme focuses on what is known as transfer pricing, in which companies transfer intellectual property between subsidiaries. Under EU regulations, Amazon should have charged itself a fair market price, or what it would have charged a separate company.
The Guardian reported in 2016 on a trove of documents it obtained from an IRS investigation into Amazon and the company’s opening of European operations in 2003, in a plan named after the goldcrest, the state bird of the Grand Duchy of Luxembourg. Starting in 2006, the company owned by the world’s richest man, Jeff Bezos, was given a beneficial tax arrangement.
In opening statements Thursday from the European Commission, Paul-John Loewenthal objected to filings made by Luxembourg.
“We feel that Luxembourg should not be able to free-ride on arguments that it did not make,” he said, claiming that the country changed its legal arguments after seeing Amazon’s submissions. Amazon and Luxembourg are joined by Ireland, home to Apple’s European headquarters, which is similar charges in an unrelated case.
Amazon employs more than 2,000 people at its European headquarters in Luxembourg City, making it one of the largest employers in a country with a population of just over 600,000.
Following opening statements in the morning session, the hearing was opened up to questions from the five-judge panel. Amazon, in arguing that its intellectual property plays a monumental role in its business, claimed that it was a “technology company that happened to do retail.”
Bulgarian judge Alexander Kornezov pushed back on that idea.
“Do you do your shopping on Amazon, do you do it because of the technology? Or because you get a good product at a good price and delivered quickly?” he asked one of Amazon’s lawyers.
The EU isn’t the only one who wants Amazon to pay up. The Project Goldcrest documents obtained by The Guardian were from an IRS investigation into Amazon. The U.S. claims that the company owes Uncle Sam $1.5 billion in unpaid taxes that Amazon managed to avoid paying by passing profits through its Luxembourg subsidiary.
In a statement, a company spokesperson said: “Amazon pays all the taxes we are required to pay in every country where we operate.”
The commission was unimpressed with the retail giant’s arguments.
“Neither Luxembourg nor Amazon have succeeded in refuting the commission’s decision that the tax ruling gave an advantage,” Loewenthal told the court.
Hearings will continue Friday.
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