By Charlie Ryu, Staff Member
In 2017, Amazon had a great year; it announced the opening of a second headquarters, inviting numerous biddings from many city governments and officials, bought Whole Foods for approximately $14 billion, and its stock price grew by 56%. However, despite having such a successful year, Amazon paid zero in federal income taxes. Ever since its establishment, Amazon has been legally exploring loopholes in the federal law; first, it refused to collect sales taxes in other states by having a warehouse in states with no sales tax, and later it has been bargaining with states for incentives, i.e., delayed, deferred, or reduced taxes, as a condition of collecting sales tax. In addition, Amazon has reduced its federal taxes by avoiding to record profits for years, and instead investing back into the business. Not surprisingly, Amazon’s tax avoidance does not end in the U.S.
Amazon established the company’s headquarters in Luxembourg and implemented Project Goldcrest, a complex tax arrangement. Amazon re-organized its business structure in Europe in accordance with the scheme; it created a maze of offshore subsidiaries and entities designed to shift profits through intercompany agreements.
In general, Amazon’s tax scheme involved the interplay between entities in Luxembourg and the U.S.: Amazon Europe Holding Technologies SCS (AEHT), Amazon EU Sarl, and Amazon US. First, AEHT owns the legal right to use Amazon’s IP, outside the US. AEHT is a limited liability partnership, which means any payment it receives from other Amazon entities in exchange for the right to use that IP would be tax-free. Second, Amazon EU Sarl, in charge of Amazon’s European businesses, pays royalty fees to AEHT. In here, the cost of royalties would be offset against its own tax bill. Lastly, AEHT pays Amazon US its own royalty fees for the right to license the IP in Europe. In the end, by adjusting the price AEHT pays to Amazon US and the money AEHT keeps from Amazon EU Sarl, Amazon gets to avoid reporting any meaningful profits. What is the end result of this tax scheme? Amazon would keep all the earnings, tax-free, through AEHT until it is repatriated back to the U.S.
In December 2017, the Tax Cuts and Jobs Act (TCJA) was passed. The TCJA made many changes affecting U.S. corporate taxes such as corporate tax rate (from 35% to 21%) and utilization of net operating loss. However, even when the corporate tax rate was 35%, not only Amazon, but also other multinational corporations, such as Apple and Microsoft, hardly paid taxes at that rate. Therefore, for now, we just have to wait and see whether the TCJA will impact Amazon’s offshore tax strategies.
 Sean Wolfe, Amazon is Now Going to Split its HQ2 into 2 Locations After More Than a Year of Intense Speculation. Here’s Everything That Has Happened in the Saga Up Until Now, Business Insider (Nov. 14, 2018, 1:27 PM), https://www.businessinsider.com/amazon-hq2-timeline-new-york-virginia-2018-11. On November 13, 2018, Amazon announced that it has chosen New York City’s Long Island City and Virginia’s Arlington for HQ2. Kaya Yurieff, Amazon Picks New York and Northern Virginia for its New Headquarters After Year-long-search, CNN Business (Nov. 13, 2018, 10:23 AM), https://www.cnn.com/2018/11/13/tech/amazon-hq2-nyc-arlington/index.html.
 Derek Thompson, Why Amazon Bought Whole Foods, The Atlantic (June 16, 2017), https://www.theatlantic.com/business/archive/2017/06/why-amazon-bought-whole-foods/530652/.
 Daniel B. Kline, Here’s Why Amazon Stock Gained 56% in 2017, The Motley Fool (Jan. 14, 2018, 9:03 PM), https://www.fool.com/investing/2018/01/14/heres-why-amazon-stock-gained-56-in-2017.aspx.
 Dan Shafer, Amazon Didn’t Pay Any Federal Income Taxes in 2017, Seattle Business, https://www.seattlebusinessmag.com/business-operations/amazon-didnt-pay-any-federal-income-taxes-2017.
 Matthew Gardner, Amazon Inc. Paid Zero in Federal Taxes in 2017, Gets $789 Million Windfall from New Tax Law, Inst. of Taxation and Econ. Policy (ITEP): JustTaxes Blog (Feb. 13, 2018), https://itep.org/amazon-inc-paid-zero-in-federal-taxes-in-2017-gets-789-million-windfall-from-new-tax-law/.
 Memo to Politicians: Bargaining for an Amazon Warehouse? Turn the Tables!, Am. Booksellers Ass’n (July 31, 2017), https://www.bookweb.org/news/memo-politicians-bargaining-amazon-warehouse-turn-tables-36452 (explaining that Amazon did not collect sales taxes “by not having a physical presence that would have created nexus” with a state).
 Jeremy Bowman, Trump is Right. Amazon Is a Master of Tax Avoidance, The Motley Fool (Apr. 8, 2018, 9:16 AM), https://www.fool.com/investing/2018/04/08/trump-is-right-amazon-is-a-master-of-tax-avoidance.aspx (explaining that as Amazon wanted to have more warehouses in more states to support Prime two-day delivery program, the company negotiated for tax systems that are favorable to it).
 Rex Nutting, Opinion: Trump is Right; Jeff Bezos is a Genius at Not Paying Taxes, MarketWatch (Apr. 5, 2018, 8:46 AM), https://www.marketwatch.com/story/trump-is-jealous-that-amazons-bezos-is-better-at-avoiding-taxes-2018-04-04.
 Amazon’s ‘Project Goldcrest’ revealed, The Bookseller (Feb. 19, 2016), https://www.thebookseller.com/news/amazons-project-goldcrest-revealed-322914.
 David Pegg, From Seattle to Luxembourg: How Tax Schemes Shaped Amazon, The Guardian (Apr. 25, 2018, 11:01 AM), https://www.theguardian.com/technology/2018/apr/25/from-seattle-to-luxembourg-how-tax-schemes-shaped-amazon (explaining the interplay between Amazon entities in Luxembourg and in U.S.)
 Id.; See also Tom Bergin, Special Report: Amazon’s Billion-dollar Tax Shield, Reuters (Dec. 6, 2012, 2:02 AM), https://www.reuters.com/article/us-tax-amazon/special-report-amazons-billion-dollar-tax-shield-idUSBRE8B50AR20121206 (explaining the inter-company transactions in more detail).
 Simon Marks, Amazon: How the World’s Largest Retailer Keeps Tax Collectors at Bay, Newsweek (July 13, 2016, 5:10 AM), https://www.newsweek.com/2016/07/22/amazon-jeff-bezos-taxes-479814.html.
 Robert Carroll, Special Report: The Importance of Tax Deferral and a Lower Corporate Tax Rate, Tax Foundation 3 (Feb. 2010), https://files.taxfoundation.org/legacy/docs/sr174.pdf. See also Iain Thomson, Amazon Dodges $1.5bn US Tax Bill: It’s OK to Run Sales Through Europe out of IRS Reach, The Register (Mar. 24, 2017, 00:34 AM), https://www.theregister.co.uk/2017/03/24/amazon_wins_tax_case_irs/ (explaining challenges the IRS brought against Amazon regarding valuation of its inter-company transaction, which could lead to $1.5 billion plus interest tax bill).
 Preliminary Details and Analysis of the Tax Cuts and Jobs Act, Tax Foundation (Dec. 18, 2017), https://taxfoundation.org/final-tax-cuts-and-jobs-act-details-analysis/.
 Donald Crotty, Ed Tong & Thomas Coyle, Tax Reform: Effects on the TCJA on the Corporate Tax Regime, Mazars Ledger (Feb. 28, 2018), https://mazarsledger.com/effects-of-the-tcja-on-the-corporate-tax-regime/.
 Patricia Cohen, Profitable Companies, No Taxes: Here’s How They Did It, The N.Y. Times (Mar. 9, 2017), https://www.nytimes.com/2017/03/09/business/economy/corporate-tax-report.html (citing a report by ITEP, which found that nearly 40% of the companies paid no taxes in at least on year between 2008 and 2015).