Online retailer Amazon has been a recent target of lawmakers who want to force it and other retailers to stop taking advantage of a tax loophole that exempts them from the collection of state sales taxes in states where they do not have headquarters or distribution facilities. While Amazon has fought those efforts, the online sales tax loophole isn’t the only one it has taken advantage of to lessen its tax burden.
Amazon has paid a high tax rate — an average of 44 percent over the last five years — on its American earnings, but by setting up subsidiaries in Luxembourg, it has taken advantage of a loophole in American tax law and saved more than $700 million in taxes on overseas profits, Reuters reports:
Amazon’s Luxembourg arrangements have helped it pay an average tax rate of 5.3 percent on overseas income over the past five years, less than a quarter of the average rate across its major foreign markets.
Company accounts show that since 2005, Amazon Europe Holding Technologies started to make payments to Amazon Technologies Inc in Nevada of up to 230 million euros ($300 million) each year. At the same time it received up to 583 million euros each year from its European affiliates. […]
Had Amazon remitted all that to the United States and then paid the headline U.S. corporate income tax rate on it, the firm would have incurred taxes of more than $700 million. But it has not and the deal has allowed Amazon’s Luxembourg unit to accrue tax-free cash worth more than $2 billion.
Until 1997, Amazon would have still owed that $700 million in taxes to the United States. But that year, a new tax provision known as “check-the-box” allowed certain overseas profits to be exempt from dividend taxes, allowing companies like Amazon to utilize low-tax havens to avoid paying millions — and sometimes billions — of dollars in taxes.
Apple, for instance, used foreign tax havens that have become popular among tech companies to avoid paying $2.4 billion in taxes last year, according to a New York Times analysis. Microsoft used subsidiaries in Puerto Rico, Ireland, Singapore, and Bermuda to avoid more than $6.5 billion in taxes, according to a report from Sen. Carl Levin (D-MI), who has advocated for closing corporate loopholes and reforming the tax code in a way that eliminates such avoidance.