Online retail giant Amazon said Tuesday it has started declaring sales in four European countries which would now be subject to local taxes, a move that could affect other multinationals under EU investigation for possible tax avoidance.
Amazon has tax agreements in Luxembourg under which it recorded European sales and paid taxes on them in the tiny country instead of at the source. The deal had provoked howls of criticism that the Internet giant was trying to avoid taxes, and sparked a probe by the European Commission.
But the Seattle-based Internet giant said it has established local branches in Britain, Germany, Spain and Italy.
"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," the company said in a statement.
"As of May 1, Amazon EU Sarl is recording retail sales made to customers through these branches in the UK, Germany, Spain and Italy," it said.
"Previously, these retail sales were recorded in Luxembourg. We are working on opening a branch for France."
While it would seem obvious that companies pay taxes in the countries they generate revenue, many multinationals use various methods to shift profits to countries like Luxembourg that have lower tax rates.
This practice is legal, but has become increasingly contested in Europe, especially at a time when countries are facing huge budget deficits.
Amazon is among several large businesses under the spotlight in Europe over tax deals in Luxembourg and elsewhere.
The European Commission is also investigating tax agreements involving US tech giant Apple in Ireland, coffee-shop chain Starbucks in the Netherlands, and Italian automaker Fiat in Luxembourg.
Ricardo Cardoso, a Commission spokesman in charge of competition issues, said Amazon's changes "going forward do not affect the ongoing EU state aid investigation regarding the possible advantages that Amazon would have potentially received in the past through the tax ruling."
- 'Unbelievable admission' -
Amazon's announcement Tuesday "is an unbelievable admission," said economist Thomas Piketty on French radio. He added that claims should be made for past years and that there should be a common tax on businesses in Europe.
In Germany, one of the countries where Amazon says it will start paying local taxes on sales, at least one official was sceptical.
Norbert Walter-Borjans, regional finance minister in North Rhine-Westphalia, Germany's most populous state, said Amazon had not given details on how it would account for sales in each country, much less in each region.
European policy "still offers too many loopholes," said Walter-Borjans, cited by the German news agency DPA.
Britain's tax authority, HMRC, said it would "examine Amazon's new UK tax structure carefully to ensure that they pay the correct tax on profits from their UK sales."
In March Britain put in place what it called a "Google tax" -- named after the US Internet search giant which also has been criticised for tax avoidance -- which puts a 25 percent tax on companies accused of diverting profits abroad.
"Time is running out for multinationals to get their affairs in order," warned the HMRC.
Pressure against tax avoidance has also been mounting on the international level with the G20 and Organisation for Economic Co-operation and Development (OECD) leading a global push against so-called tax avoidance or tax optimisation.
"Amazon's decision shows that at the political level, there needs to be support for adopting, under the aegis of the G20, a strong plan against fiscal optimisation," Pascal Saint-Amans, OECD director of fiscality told AFP.
The tax advocacy group Tax Justice Network said on its website that "the political mood... seems to be consistently moving in one direction: against the abuses.
"As public understanding and knowledge of this global scandal continues, we expect this trend to continue," it added.
However, one tax lawyer described the move as being more tactical than strategic for Amazon, designed to improve its public image and put pressure on its competitors to do the same.
Laurent Leclercq, a tax lawyer at the Fidal, France's largest business law firm, said Amazon "isn't necessarily profitable" in each country and thus wouldn't pay taxes.
The company posted a loss of $57 million (52 million euros) in the first quarter of this year.