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Amazon begins to book revenues in separate countries in what expert says is response to regulatory pressure

E-commerce giant Amazon has begun booking revenue in individual European companies, a move that tax expert Heather Self of Pinsent Masons, the law firm behind, said is probably influenced by upcoming regulatory changes.26 May 2015

"As of 1 May, Amazon EU Sarl is recording retail sales made to customers through these branches in the UK, Germany, Spain and Italy. Previously, these retail sales were recorded in Luxembourg," Amazon said in a statement.

"We regularly review our business structure to ensure that we are able to best serve our customers and provide additional product and services. More than two years ago, we began the process of establishing local country branches of Amazon EU Sarl, our primary retail operating company in Europe," Amazon said.

Amazon also said that it was "working on opening a branch for France".

Self said she believes regulatory pressure on multinationals like Amazon is behind the move.

For example, she said, the Organisation for Economic Co-operation and Development (OECD) has published an action plan on base erosion and profit shifting (BEPS), identifying 15 specific actions to prevent international tax avoidance.

Meanwhile, the UK has proposed its own legislation, the diverted profits tax (DPT).

"BEPS is starting to tilt the playing field, with companies deciding to pay more corporation tax rather than risk protracted disputes – particularly in the UK where the threat of DPT means that paying slightly more than the minimum is a safer strategy," said Self.

The OECD's BEPS action plan requires multinational companies to report on profits earned and taxes paid on a country-by-country basis, and the OECD's final recommendations are due by the end of 2015.

HM Revenue and Customs (HMRC) has said that the main objective of the diverted profits tax (DPT) "is to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base".

Changes to the VAT rules in the EU will also have influenced Amazon, Self said.

"One of the main reasons for Amazon’s original choice of Luxembourg for its European headquarters was the low rate of VAT on sales of electronic books. With the changes to the VAT system from 1 January 2015, that advantage no longer applies, so the same rate of VAT applies whether items are sold by Luxembourg or by a local branch," she said.

For the start of 2015, VAT on telecoms, broadcasting and electronic services is charged at the rate of the consumer's country, not that of the supplier.

In January, the European Commission announced that it was conducting an "in-depth investigation" into Amazon's tax arrangements in Luxembourg, saying that these may have counted as illegal state aid.