Amazon diverts Spanish sales abroad to avoid tax

Online retail giant's two subsidiaries in Spain were both in the red in 2012

An employee fulfills orders in Amazon Spain's logistics center in San Fernando de Henares, Madrid
An employee fulfills orders in Amazon Spain's logistics center in San Fernando de Henares, MadridÁlvaro García (EL PAÍS)

Internet retail giant Amazon has reorganized its activities in Spain since purchasing Buyvip and opening its Spanish online store. The company has transformed the fashion retailer, which it bought for 70 million in 2010, into a services company and rechristened it Amazon Spain Services, slimming it down in order to take the sales side to Luxembourg, where sales for the rest of its products are handled.

The setup mimics that of its other Spanish company, Amazon Spain Fulfillments, which even exploits regulations for small- and medium-sized enterprises to pay less, enjoying a reduced tax rate for not invoicing for its sales in Spain.

Amazon is not the first company to use this model. Other big technology firms also use it to minimize the amount of tax they pay on earnings created in the Spanish market. Apple, Google and other companies handle their sales out of Ireland with their firms in Spain only declaring a part of the income generated in the Spanish market as commission for services provided, or similar ploys. Developed countries are now searching for a way to put a stop to such practices.

The company founded by Jeff Bezos openly admits in its annual report that it pays less tax on profits accrued in its European operations by virtue of being based in Luxembourg. The structure it has chosen to launch its online store in Spain fits the same model. Despite the success of the store's launch, Amazon's Spanish subsidiary declared losses of 54,329.80 euros, according to accounts deposited at the Mercantile Registry.

Amazon Spain Fulfillment was set up under the name Amazon.com Spain in 1998, but remained more or less dormant until the end of 2011 when the Spanish market site was launched. The recently deposited accounts are the first from a full tax year of normal activity.

Amazon even exploits regulations for SMEs to pay less tax in Spain

The company's initial objective was online retail, including the sale of books, CDs, DVDs computer games and software, but it then changed that to the provision of "corporate support services," fundamentally to other companies in the group - the company's implicit admission that it was not planning to handle its Spanish market sales in Spain.

The firm declared revenues of 10.59 million euros - 34 times more than the 314,417 euros it made in 2011 - saying only that these "were generated as part of the ordinary activity of the company" - basically, providing logistical services to other companies in the group, in particular to its sole partner, the Luxembourg-based Amazon EU, which is the firm that handles the sales.

Pre-tax profits are 129,611.70 euros, but the company declares net losses because part of its expenses are not tax deductible, taking 183.941,63 euros off the bottom line. In taxes, 533,527 euros deriving from share plans are not considered tax deductible. On top of that there are also seasonal differences of 198,094 euros, with which the taxable base is 861,233 euros.

As the company is considered of "reduced size" it pays 25 percent tax on the first 300,000 euros and the general rate on the rest. Because of this, it is also not obliged to have its accounts audited or produce a management report.

At the same time, Amazon has started to empty out Buyvip, now called Amazon Spain Services, to apply the same plan.The new company sold its Italian and German arms to Amazon EU for 11.3 million, at a total loss of 13.66 million, which is now helping it save on taxes.

Above all, though, the 2012 accounts show a complete change of model. The company has stopped owning commercial stock and now doesn't buy from suppliers, having transferred that activity to Amazon EU. "From the date of September 23, 2012, the company has modified its main activity, passing from a model based on distribution to another based on the provision of services," explains the firm, which has reduced its staff from 145 to 118 in a year.

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