EU Bills Bezos

[Guest]

EU regulators will continue their round-up of multinational “outlaws” today, slapping Amazon (-0.22%) with a several hundred million dollar bill for avoiding EU taxes since 2004 (h/t FT).

The European Commission’s head bounty hunter, Margrethe Vestager, alleged Amazon funneled over $3 billion in profits to its Luxembourg-based subsidiaries to protect them from European taxes. 

How? Luxembourg supposedly offered a cap on taxable profits to Amazon. In return, Amazon would place its core European operations in Luxembourg. 

This isn’t the first de-Luxe treatment

Luxembourg, a tiny nation of 580,000, has cemented itself as the “cool uncle” of the EU, offering lucrative tax breaks to corporations. One Disney subsidiaryreported $1.2 billion in pretax profit over four years, but only paid $3.2 million in taxes—that’s a 0.25% tax rate!

Not convinced? Look no further than FedEx, which enjoyed an effective tax rate of less than 1%. Altogether, Luxembourg has lured well over 300 eager multinationals into its European tax haven heaven.

But the pearly gates are closing fast

The EU has been on high alert, plugging up tax loopholes across the European bloc. Vestager cracked the whip on Apple last August, demanding it cough up $15 billion to Ireland in unpaid taxes. And Starbucks found a ~$35 million ticket on its windshield in the Netherlands for a grande cup of tax evasion. 

It begs the question: how will multinationals react? If historically low tax rates and loopholes drove $2.6 trillion overseas in the first place, could a GOP plan for lower U.S. corporate taxes (20% down from 35%) and a one-time tax repatriation holiday bring the cash back?