In 2005, Amazon rented a five-story building in Luxembourg. By channelling sales through its units there, the world's biggest online retailer could minimize corporate taxes.
These arrangements have deprived European governments of hundreds of millions of dollars in tax. And an examination of accounts filed by 25 Amazon units in six countries shows they also allowed the company to avoid paying more tax in the United States, where the company is based.
In effect, Amazon used inter-company payments to form a tax shield, behind which it has accumulated US$2 billion to help finance its expansion.
Amazon revealed last year that the US Internal Revenue Service wants US$1.5 billion in back taxes. The claim is linked to its foreign subsidiaries and payments made between them.
The issue highlights the way multinationals reduce taxes by parking intellectual property in tax havens and charging affiliates fees for using it. Politicians in rich countries are beginning to target such practices.
Michael McIntyre, a tax expert at Wayne State University in Michigan, said: "The IRS shouldn't be happy about this," he said. "It sounds like they're not."
In a statement an Amazon spokesman said: "Amazon pays all applicable taxes in every jurisdiction that it operates within."
The group has come under scrutiny from tax departments in at least six countries over the past six years.
The Luxembourg structure fulfils a corporate obligation to shareholders to maximize returns. There is no suggestion the company has broken any laws. Amazon, which started out selling books and now offers everything from tools to toys, paid an average 44 percent tax on its US earnings in the past five years.
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