NEW YORK (TheStreet) -- Amazon's (AMZN) recent decision to start paying local tax rates in individual European countries could have a domino effect on the overseas operations of major American technology companies such as Google (GOOGL) (GOOG) and Apple (AAPL), which have been embroiled in court cases against European regulators.
"Amazon is a bellwether in managing its tax position in overseas territories," says Robert Willens, tax consultant and professor at Columbia University. "[Technology] companies are seeing the writing on the wall, and this is a wake-up call to them." The Seattle-based company's move comes after a preliminary finding in January by EU regulators that it received "unfair state aid" from the Luxembourg government through a special tax deal.
Previously, Amazon had been using its Luxembourg subsidiary to siphon profits in Europe. The company derived 14% of its total revenue, or approximately $15 billion, from Europe in 2013. During the same year, the company's 2003 tax deal with the Luxembourg government reduced its overall tax liabilities in Europe by 8 percentage points to 31.8%.
That said, Willens discounts the effect of Amazon's admission that it is paying artificially low taxes. "It sounds like they have absolute control over where they actually report their income from," he says, adding that "through the mechanism of paper shuffling, Amazon is conceding that some of their income is earned in high tax regimes in Europe." "It [the move by Amazon] simply highlights the absurdity of this arrangement," he explains.