The Italian taxation officers have shifted their attention to Amazon once again, and now the new stage of the extensive investigation of the financial activity of the tech company in the country has begun. Thursday: the Guardia di Finanza of Italy conducted searches in the headquarters of Amazon in Milan, in another investigation on tax evasion, of which two of the sources are aware, this time. The accompanying development is an indication that regulatory pressure on multinational corporations in the European context is still solid especially when concerns on where profits are recorded and where taxes are eventually paid.
The corporate offices were not spared in the searches. The homes of seven Amazon managers were also investigated by authorities and the offices of the auditing company KPMG were inspected. Although it is not KPMG that is being investigated, it is connected with the fact that KPMG was closely involved in advising the corporate arrangements under review. The severity of the investigation is highlighted by such actions, and it implies that the probe team was to investigate the decision-making process and the frameworks of advice under which it took place.
The focal point of the investigation is whether Amazon had an unabided permanent establishment in Italy since 2019 and until 2024, as prosecutors claim. The idea of a permanent establishment has a critical role in international tax law. When a company can be considered to have been established in a location and has been continuously active in the specific country, it might be expected to report revenue and make corporate taxes in that country even though its official headquarters might be in a different location. This difference can be financially bearable in the case of global companies that are organized in multiple jurisdictions.
The prosecutors based in Milan have initiated a case against Amazon EU Sarl, the Luxembourg-based company that manages most of the operations of Amazon in Europe, and its director, Barbara Scarafia. A search warrant that was issued against the company and examined by authorities over 13 pages indicates that the company is suspected of not reporting income that can be taxable in Italy. Prosecutors investigate whether the effective presence of Amazon in Italy between April 2021 and August 2024 before the group formally entered a so-called co-operative compliance programme with the tax authority in Italy, effectively constituting a permanent establishment in Italy, just in time to start paying taxes locally within that framework.
The collaborative compliance programme should help to create transparency between giant firms and tax officials. Companies can lower dispute cases and explain tax obligations upfront by sharing information with regulators voluntarily and collaborating with them. In August 2024, when Amazon became a member of the programme, it changed its tax relationship with the Italian authorities to a more direct one. But at least, investigators are currently examining whether such compliance ought to have started earlier or not.
One of the areas of the case that are especially sensitive is employment arrangements. According to the investigation findings and eyewitness accounts mentioned in the warrant, the prosecutors accuse Amazon EU Sarl of dismissing and later rehiring 159 workers of another Amazon company in 2024. Authorities are of the opinion that these employment developments might have been a de facto permanent establishment in Italy before it was recognized. In complex multinational organization, interentity transfers of staff can be able to impact the attribution of revenue, costs and profits across borders. To tax investigators, these structural judgments are hardly considered as administrative.
In the searches, tax police are said to have taken computers and other information technology equipment that belonged to managers. Some of the things retrieved included hard drives containing the mails of the staff members, which are normally deleted within the Amazon internal systems after three months. The fact that these digital records have been retrieved points to the idea that the investigators are attempting to re-create internal debates and decision making approaches concerning the internal structure of operations at the company in Italy. Digital correspondence can be a crucial piece of evidence in the investigation of taxes nowadays, as it may depict the method of planning and implementation.
This new probe is not a standalone object. Over the recent years, Amazon has already encountered numerous tax related issues in Italy. The company had settled a separate dispute with the tax collection agency of Italy in December by paying 510 million euros. The former case was related to the alleged tax evasion that was in the range of 1.2 billion euros during the period between 2019 and 2021. A source close to the case believes that the prosecutors should be concluding that investigation shortly.
In addition to that settlement there are two other investigations underway. One is the supposed tax evasion between 2021 and 2024, and the other is the supposed customs and tax fraud associated with Chinese imports. These cases, put together, depict the extent of questioning Amazon in Italy. They also indicate a wider European trend where governments are scrutinising the way multinational digital firms are organising their cross border sales, logistic networks, as well as supply chains.
To most observers, such a case is a reminder of the current tension between the national tax systems and the globalized nature of technology companies. Companies like Amazon have interlocked subsidiaries in a multi-country setup and tend to centralize intellectual property, or logistics or billing capabilities to locations with favorable taxation systems. Although such structures can be in tandem with the current legislation, regulators are raising more and more concerns about whether such structures make sense in the economic reality of the creation of value.
Italy is not alone in this pursuit with other European countries stepping up to make sure that the companies operating in their territory and making huge profits have to pay their share to the state treasury. It is not only financial stakes involved. The perception of the society is a strong force. Political pressures are likely to increase when the multinational corporations are perceived to pay less tax than the domestic business. Governments, constrained by budgets and demands of the general population that they act fairly, tend to react to the call by further investigation and reform of legislation.
Amazon has not issued any official statement on the most recent searches yet and those involved have not been very vocal about it. KPMG refused to provide any comments and legal representation related to people on the list of the warrant was not available at once. During high profile investigations, responses by the corporation are usually calculated and guarded in line with both legal and reputational risks.
In the process of its investigation, it is probably that it will be based on the interpretations of the tax law, employment schemes, and the meaning of permanent establishment in detail. These are not the cases which can be easily solved. They include a lot of document scrutiny, professional examination, and even protracted court cases.
