03/05/17

Italy to Open $141M Criminal Tax Probe Into Amazon Subsidiary

Prosecutors in Milan are preparing to launch a formal criminal investigation into Amazon.com Inc. to determine whether the U.S.-based online retailer skipped out on a 130 million euro ($141 million) tax bill over a six-year period, reports BNA.

A separate, smaller-scale administrative investigation—a kind of audit that could carry sanctions—into the company could also be in the works, tax officials told Bloomberg BNA.

The paperwork for the criminal probe was filed April 28, just before a three-day weekend in Italy. The Milan prosecutor’s office declined to comment on the pending case when contacted by Bloomberg BNA May 2, but an official confirmed that the paperwork had been filed.

On May 2, Amazon’s Italian office issued a statement denying any wrongdoing.

“Amazon pays all the taxes we are required to pay in every country where we operate,” the statement said. “Corporate tax is based on profits, not revenues, and our profits have remained low given our heavy investments and the fact that retail is a highly-competitive, low margin business.”

The statement also said the company has invested more than 800 million euros in Italy since it began operations in the country in 2010, and noted that it employs more than 2,000 full-time workers in Italy.

In Italy, tax investigations can be criminal or administrative, although in this case the administrative investigation would be narrower in scope.

Administrative investigations can only go back five years, according to Francesco Tundo, a tax law professor from the University of Bologna. So “an investigation opened this year, before Dec. 31, can only look into tax year 2012 or later,” Tundo said in an interview.

According to Giovanni Iaselli, a tax attorney with DLA Piper in Milan, the case involving Amazon is particularly complicated because the company operates as a fixed entity in Italy that handles the logistics and some of the administrative aspects of the company, while the European entity based in Luxembourg is the official entity that handles company sales.

“The structure of companies like Amazon can make enforcing tax laws much more difficult,” Iaselli told Bloomberg BNA.

Harmonized Tax Laws

Tundo, Iaselli and others said similar cases are likely in the future until European tax laws are harmonized.

“This kind of case will continue to emerge as long as each country has its own set of laws,” Carlo Garbarino, a tax law professor at Bocconi University in Milan, said in an interview.

Tundo said that until the European Union has a uniform set of tax rules in this area, enforcement will be complicated and mostly ineffective.

“It’s like closing the barn door after the horse has run out,” Tundo said. “Italy will most likely recover some money from Amazon in this case, but there are hundreds of cases with smaller companies that will never come to light.”

Apple Probe

Amazon is the latest in a series of high-profile U.S.-based digital companies Italy has investigated on allegations of tax evasion. In January, Italy launched a tax probe involving at least 224 million euros into Google, a subsidiary of Alphabet Inc. That investigation is still open.

In late 2015, the Italian subsidiary for Apple Inc. settled a much larger tax suit for 318 million euros, still the largest single tax settlement case in Italy.