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Economics of Tax Evasion: Amazon’s Tax Avoidance
in Luxembourg

Politics of International Business
Final Exam: No
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Company Profile
Amazon
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, best known as Amazon, is an American electronic commerce and cloud
computing company founded on July 5, 1994 and launched in 1995 by Jeffrey P
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Their company headquarter is located in Seattle,
Washington, USA
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Their product’s diversified since 1998, varying from hard goods, soft goods, to digital
goods
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Now, Amazon is a home for more than forty product categories
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And
to date, Amazon is considered the world’s largest online retailer and has over 30 subsidiaries
globally with more than 2 million affiliates
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They also serve
customers who want to start their businesses through their cloud offers or who just in need of
cloud space
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with people around the world for the execution of human intelligence task
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2
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Like any
other corporations, Amazon find ways to lower cost and maximize profit though they’re also

Amazon
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, “Working at Amazon: Highlights,” accessed on May
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amazon
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2
Gabriele Paolacci, Jesse Chandler, and Panagiotis Ipeirotis, “Running Experiments on Amazon Mechanical
Turk,” Judgment and Decision Making 5, no
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http://hdl
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net/1765/31983
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Their success in
cyberspace and the economy could be traced to their investment strategy, specifically
investments in research and development, and market expansion
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Recognizing Amazon’s trait in investments for expansion and development, the question
whether Amazon would be tempted to conduct tax evasion to ‘protect’ their income arises
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Though it is still legally wrong, tax
evasion isn’t uncommon amongst corporations and many are tempted conduct the deed
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Unfortunately, Amazon is one of the several large corporations to conduct tax evasions through
its holding company in Luxembourg, a low-tax haven state
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3
...
In the
economic world, individuals and civilians aren’t the only actors in the tax systems to pay up to
the government but corporations and businesses too as they play a central role in the tax system
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Tax evasion has become an integral part of a business and tax system as
every corporation must’ve been at least tempted with the idea itself (though whether they
commit the tax evasion itself lies on the decision of the company)
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The issue of tax evasion itself isn’t only
affecting governments and business but also the society (which ultimately, leads to
corporations as they are part of the society) in which the tax money is supposed to be spent on
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time
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3

Tax evasion creates inequality in the system as well-of people and corporations end up with
different tax burdens and it imposes efficiency costs as the resources taxpayers spent to
implement and camouflage the ‘evasion’ are almost as costly as paying the taxes itself 4
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However, with the implementation of a policy made by including the
consideration of tax evasion would result in the introduction of a new set of policy instruments,
perfect for dealing with the issue through analysis
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4
...
S
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pdf,” accessed May 15, 2017, http://darp
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ac
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pdf
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Amazon’s Tax Evasion in Luxembourg
Following Amazon’s expansion to Luxembourg, the company has embarked on a project
called Project Goldcrest
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The documents show a complex 28-steps-scheme for Amazon’s tax evasion
which took more than two years to complete and reordered its global business in Europe
through a complex web of offshore accounts and intercompany agreements
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The
case, which could force Amazon into paying more than $1
...
S
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Amazon itself has maintained that they paid all
the required tax in every country they operated in though the leaked documents has proven
otherwise
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A separate subsidiary, Amazon EU Sarl, then pays AEHT huge sums every year
in royalty fees to reduce the amount of taxable income within the company
...
S
...
S
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On
the other hand, European investigators are suspecting Amazon of inflating the royalty
payments from one of its Luxembourg entities to another in return for using the IP, which
effectively wipes out any taxable profits5
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Documents outlining the internal revenue service (IRS) findings show that Amazon hid key
data from the IRS during an audit of the company’s tax arrangements in Luxembourg by

Harry Davies and Simon Marks, “Revealed: How Project Goldcrest Helped Amazon Avoid Huge Sums in
Tax,” The Guardian, February 18, 2016, sec
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theguardian
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5

hiding part of its model projecting tax benefits from Project Goldcrest, specifically the
model part titled “S Team Meeting”
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Despite the evidence found on Amazon’s tax evasion, the company itself firmly states:
“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
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2
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S
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As both countries follow a different economic and political principle,
there’s a huge difference between the percentage of tax rates and their method of
calculations or managements for tax
...
S
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Though generally, a foreign corporation engaged in a U
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trade or
business is taxed at regular U
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corporate tax rates on income from U
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sources which are
directly connected to that business (39
...
S
...

The U
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corporate income tax (CIT) rate is based on a progressive rate schedule though an
alternative minimum tax (AMT) provides a flat rate with fewer deductions
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Therefore,
for a corporation as big as Amazon with over a dozen offices and stores across worldwide,
they’re subjected to a tax rate of about 35%
...
S tax policy, multinational
companies aren’t required to pay U
...
tax on their foreign subsidiaries’ profits for years (or
Simon Marks On 7/13/16 at 5:10 AM, “How Amazon Keeps Tax Collectors at Bay,” Newsweek, July 13, 2016,
http://www
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com/2016/07/22/amazon-jeff-bezos-taxes-479814
...

7
Mathew Ingram, “Amazon Gives in to Pressure from EU on Tax-Avoidance Strategy,” Fortune, accessed May
17, 2017, http://fortune
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6

even indefinitely) until the earnings are returned to the U
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This is one of the main reasons
why U
...
corporations pay low taxes despite its corporate tax rate is one of the highest in
the world with 35%8
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Now, Luxembourg on the other hand, is well known for its low tax rate of only 21% (for
companies with a taxable income above EUR 15,000 and Amazon approximately earned
way more than that)9
...
S
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As Amazon isn’t considered a residence in Luxembourg, the company
must adhere to the 21% tax rate, which is noticeably much lower than the tax rate in the
U
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From the comparison of CIT rates between the two countries, it is clear to understand why
Amazon would be tempted to evade tax through its European branch in Luxembourg
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Its company strategy in pushing the cost for
maximum profit (and consequently, for investments and expansions) is probably
considering tax evasion as a business move, especially since tax evasion isn’t as uncommon
as it seems in the corporate world
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Any costs relating to the
“camouflaging” of their tax evasion (e
...
the making of shell corporations, transferring
funds, etc
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It is
nothing personal in their part, it’s simply a business strategy
...
S
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Incidentally, this leniency towards deferral proves to be beneficial for U
...
based

“United States - Taxes on Corporate Income,” accessed May 17, 2017,
http://taxsummaries
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com/uk/taxsummaries/wwts
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9
“Luxembourg - Taxes on Corporate Income,” accessed May 17, 2017,
http://taxsummaries
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com/uk/taxsummaries/wwts
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8

companies like Amazon to raise the cost of capital relatively to their foreign-based
competitors
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By allowing the delay (especially until
indefinitely) of tax payments until the company’s foreign profit is brought back to the U
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,
Amazon and other MNCs benefits the most from this loophole
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Now, to create the appropriate measures for reducing tax evasion, its important to take the
economics of tax evasion into account: any conduct of finding loopholes and schemes for
avoiding tax is no longer uncommon
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As a result, the number of European investors with offshore accounts really did
decline though the number of shell corporations with offshore accounts also increased by a
similar amount
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Reducing or finishing off tax evasion is difficult as there is
unpredictable slippery effect on the actors involved
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Amazon’s strategy in maintaining a low profit
but a high revenue isn’t technically illegal, but hiding a model information from IRS and
creating false valuation for its assets is no doubt an illegal conduct of business
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Furthermore, it promotes inequality as everyone is subjected to different tax burdens
...
S
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Their actions in evading tax has shown their support in
inequality and consequently, this company is already facing charges for a billion-dollar
fine
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com, accessed May 17, 2017, https://www
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com/business/2015/10/05/tax-evasionpretty-big-deal/5tBqmvYsM8eufvIMQHHAZN/story
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Conclusion
To recap, Project Goldcrest is a “shell” company or project founded by Amazon to camouflage
its activities in evading tax
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Though a few of Amazon’s strategy is actually considered legal, some of
the actions taken by the company is already out of line
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In short, there are several factors leading up to the tax evasion enacted by Amazon through its
office in Luxembourg
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The second is the temptation for tax evasion as it is no longer uncommon in the
corporate world and any impact towards the company’s image could be easily bribed off or
“fixed” through conducting CSR
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S
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And the last factor
is the low tax rate in Luxembourg as it is one of the world known tax-havens amongst MNCs
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Any
expansion to another European country would not arouse suspicion within corporate tax
investigators, which explains why the deed is only recently leaked despite it happening since
2006
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It is deeply important
to consider all sorts of impact and effect when creating a corporation tax policy as there’s a
tendency for the actors to be sneakier when they’re faced with stricter or a change of policy
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To combat this, tax policymakers should be perceptive
and take any possible outcome into account, and most importantly, continuously renew the
policies made to maintain its validity in the growing economic era
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“Tax Evasion Is a Pretty Big Deal - The
Boston Globe
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com
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https://www
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com/business/2015/10/05/tax-evasion-pretty-bigdeal/5tBqmvYsM8eufvIMQHHAZN/story
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“About Amazon - Working at Amazon - Our Global Offices
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https://www
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com/p/feature/qj2fb38w5m9h6z8
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“How Amazon Keeps Tax Collectors at Bay
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http://www
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com/2016/07/22/amazon-jeff-bezostaxes-479814
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Davies, Harry, and Simon Marks
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” The Guardian, February 18, 2016, sec
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https://www
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com/technology/2016/feb/18/revealed-project-goldcrestamazon-avoid-huge-sums-tax
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“Amazon Gives in to Pressure from EU on Tax-Avoidance Strategy
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Accessed May 17, 2017
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com/2015/05/25/amazon-tax-euregulators/
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” Accessed May 17, 2017
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pwc
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nsf/ID/Luxembourg-CorporateTaxes-on-corporate-income
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“Will Amazon Take Over the World?” Time
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http://business
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com/2012/07/16/will-amazon-take-over-the-world/
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“Running Experiments on
Amazon Mechanical Turk
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5 (August 1,
2010): 411–19
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pdf
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http://darp
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ac
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pdf
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” Accessed May 17, 2017
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pwc
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nsf/ID/United-States-CorporateTaxes-on-corporate-income

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