EU move feeds US tax plan urgency

European Union targets Amazon and Apple as US companies stockpile an estimated $2.6tr

European Union regulators’ tax crackdown on Amazon.com Inc — like the EU’s case against Apple Inc — should spur US policymakers to address companies’ aggressive offshore tax-avoidance strategies before it’s too late, experts said.

The EU on Wednesday said Luxembourg must collect €250 million (Dh1.07 billion, $294 million) from Amazon. Regulators found that Luxembourg had given the world’s largest online retailer special tax advantages that meant “almost three quarters of Amazon’s profits were not taxed,” EU competition commissioner Margrethe Vestager said.

In a statement, Amazon denied receiving special tax benefits.

Last year, in a similar finding, the EU ordered Ireland to collect as much as €13 billion ($15.3 billion) in back taxes from Apple. The company has challenged the findings. On Wednesday, the European Commission said it will sue Ireland for failing to collect that amount.

“Really, what we are seeing is a race by the different taxing jurisdictions to claim a share of the tax prize represented by the largely untaxed streams of income that US multinationals have engineered for themselves,” said Ed Kleinbard, a professor at the University of Southern California and the former chief of staff for Congress’s Joint Committee on Taxation. “If the United States doesn’t join the race, it will just lose tax revenue to more aggressive host countries around the world.”

The EU rulings “do make it clear that if we are not interested in protecting our corporate tax base, other countries will be more than happy to tax the income,” said Kimberly Clausing, a professor of economics at Reed College in Portland, Oregon.

The latest EU enforcement effort comes one week after congressional leaders and President Donald Trump released a nine-page framework for legislation to overhaul the US tax code. The plan includes slashing the corporate tax rate to 20 per cent from 35 per cent and tax cuts for individuals.

The plan would also make a radical change in the US approach to international taxation. Under current law, America taxes its corporations’ income globally, no matter where it’s earned. But that worldwide reach, which is unique among developed economies, comes with a quirk: Corporations can defer tax on their offshore earnings until they “repatriate’’ them, or return them to the US parent.

As a result, US companies have stockpiled an estimated $2.6 trillion offshore. The Republican framework for a tax overhaul would apply lower tax rates to that accumulated income — allowing its return to the US — and end the global approach going forward to focus on US profit.

But there’s still concern that some companies — especially in the tech and pharmaceutical industries — could shift much of their profit into tax havens, countries with tax rates far lower than the US goal of 20 per cent.