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Amazon changes Europe tax practices amid ongoing probe

The online retail giant will cease funnelling sales through low-tax Luxembourg, a strategy seen as a tax-avoidance effort.

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Amazon will begin logging sales in individual European countries, a shift that may result in a greater tax burden. Declan McCullagh/CNET

Amazon will begin paying taxes in individual European countries instead of funneling sales through low-tax Luxembourg amid ongoing investigations into the tax strategies of American tech companies in Europe.

Amazon's new tax practices went in to effect on May 1, with local divisions in the UK, Germany, Italy and Spain already recording their own revenue, an Amazon representative said. The strategy shift, which was first reported by The Guardian, could result in a larger tax charges in certain countries.

Amazon said it began laying the groundwork for changes to how it reports revenue in Europe two years ago.

"We regularly review our business structure to ensure that we are able to best serve our customers and provide additional product and services," a company spokesman said.

The move comes amid increased scrutiny into the tax-saving strategies used by multinational companies operating in Europe to reduce their tax global burdens. In addition to Amazon, regulators have reviewed the practices of Apple and Google, as well as tax deals for Starbucks in the Netherlands and for Fiat in Luxembourg.

Amazon funneled 13.6 billion euros, or $15 billion, through its main operating company in Europe in 2013, an increase of 14 percent, the company said in a regulatory filing last year. The arrangement allowed Amazon to reduce its overall tax rate by 8 percent to 31.8 percent, the company reported.

The European Union's European Commission opened an "in-depth investigation" into Amazon and Luxembourg last fall over a "tax ruling" from 2003. EU regulators said in January that Amazon's tax arrangement might violate EU rules by giving the online retailer an unfair advantage over its competitors.

The investigation is nearly identical to the one impacting Apple in Ireland. In that case, the European Union is investigating whether a special deal between Apple and Ireland's government allows the company to sidestep much of its tax liability. The country's corporate tax rate is 12.5 percent, but Apple pays less than 2 percent in taxes in Ireland. If the European Union decides that this is improper, then Apple could be forced to pay billions of euros in unpaid taxes stretching back 10 years.