Amazon shares closed lower in the US trading day Monday, likely hurt a little by news the US tax office clampdown could hit the online retail giant.
Following the European Commission’s ruling that Amazon must pay Brussels €250 million in back taxes, the US tax office is said to be following up on its own back tax case against Amazon, that it lost earlier this year.
The EU ruling came as it was decided Amazon was getting an unfair tax deal in Luxembourg. Following that decision, an Amazon spokesperson said: "We will study the Commission's ruling and consider our legal options, including an appeal.”
EU tax crackdown
The EU’s Amazon tax ruling follows others, including one against Apple, as part of a tax crackdown by European Competition Commissioner Margrethe Vestager.
On the EU Amazon decision, Vestager stated: "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon's profits were not taxed."
US IRS gets tough on tax
The US internal revenue service (IRS) lost a court case in March 2017 on the same Luxembourg subsidiary the EU case was based on. The EU’s Amazon tax demand suggests the IRS is now well-placed to issue its own back tax request to the online retailer.
Indeed, the EU tax bill reflects around half of the taxable profits of the Luxembourg holding office. EU officials are said to anticipate a similar back tax bill will be issued to Amazon by the IRS.
Based on a US tax rate of 35%, the US tax bill could be higher at €300 million.
The tax payment problem stems from how Amazon conducts its online sales business. It says the merchants using its platform should be responsible for tax payments on the goods they sell and profits they make.
However, as the tax crackdown goes global, it appears tax departments around the world disagree with that. Instead, they say Amazon must pay tax on the profits it makes and not rely on payemnt from the individual retailers that sell their goods on the Amazon retail platform.