Amazon cases

The Commission started investigating in 2015 and the case was closed in 2017. The allegation is abuse of dominant position by Amazon in the market of retail distribution in Europe of e-books in english and german languages, by requiring particular conditions in agreements with e-book suppliers.

4.6.1.1 Relevant markets

The Commission considered the relevant markets to be the market of retail distribution of English language e-books for customers and the market of retail distribution of German language e-books for customers. The Commission considered that there is little substitutability between e-books and printed books and that even if the language of e-books doesn’t change the agreements between the book supplier and the book retailer, consumers generally don’t find e-books with different languages substitutable. The relevant markets are national, so that relevant geographic markets are defined by grouping together countries that speak prevalently the same language (in Europe). This means, for e-books in English, United Kingdom and Ireland, and for the ones in German, Germany and Austria.

4.6.1.2 Abuse of dominant position

The Commission, in the Preliminary Assessment, considered that Amazon holds a dominant position in the market of retail distribution of German and English e-books. In fact, the company’s market shares from 2010 to 2015 have been between 70% and 90% in the first market and from 2011 to 2015 between 40% and 60% in the second one. Moreover, there are high entry barriers in both markets and the consumers lack of buyer power.

Amazon abused of its dominant position by forcing e-books suppliers to offer to Amazon equivalent or better terms than other e-book retailers, and to notify Amazon about any changes in terms with its competitors, by contractual clauses. The clauses referred not only to price, but also to alternative business models or promotions. The Commission believes it prevented e-books suppliers from investing in potential innovative and alternative business model and it prevented Amazon’s competitors from researching alternative business models to compete with the dominant company.

The conduct’s consequences were, in the Commission’s opinion, less competition and higher prices for consumers.

4.6.1.3 Amazon’s commitments

On January 13, 2017, Amazon offered some commitments. First, the company would not enforce any of the clauses requiring e-book suppliers to inform Amazon about competitors’ new terms and offering similar conditions to Amazon. Second, the company allows publishers to terminate contract containing the Discount Pool Provision clause – a clause that gives Amazon “credits” that can be used to discount e-books of a publisher; the company obtain credits every time the price of a publisher’s book exceeds the one of the cheapest e-book retailer competitor - giving 120 days’

advance notice. Finally, Amazon will not apply any of the clauses in future contracts. The commitments would last 5 years and if Amazon would not respect the commitments, the Commission could charge the company 10% of its total annual turnover without having to detect an anti-competitive behavior.

The Commission accepted the commitments on May 4, 2017, concluding that the proposed commitments could solve the competition concerns that it was investigating. [49]

Image 4.9 The Commission accepts Amazon’s commitments. [49]

4.6.2 Amazon’s state aid in Luxembourg

The Amazon Group is composed of Amazon.com Inc. and all companies controlled by Amazon.com Inc. Among the companies of the Amazon Group two are incorporated in Luxembourg – Amazon EU (AEU), the operating company, and Amazon Europe Holding Technologies (AEHT), the holding company - and benefit from Luxembourg’s tax treatments.

Amazon EU is responsible for Amazon’s retail business in Europe, as that all sales made throughout Europe are recorded in this company, and so are the profits. Amazon Europe Holding Technologies act as intermediary between Amazon EU and Amazon US; it has no employees and no business activities, but it has the right to sell Amazon’s intellectual property to Amazon EU, making annual payments to Amazon in the US for this purpose.

According to Luxembourg’s tax ruling, the company was able to shift profits from AEU (taxable in Luxembourg) to AEHT (not taxable in Luxembourg because of its legal form) with the justification of paying royalties in order to use Amazon’s intellectual property.

4.6.2.2 European Commission allegations

The Commission considered that the profits’ shift from Amazon UE to Amazon Europe Holding Technologies was not justified by the payment of Amazon’s intellectual property since they were a lot higher than what AEHT paid to Amazon US to obtain it (1.5 times higher). The amount corresponded on average to 90% of AUE’s profits: these profits were not taxed.

Image 4.10 Amazon’s tax structure in Luxembourg. [50]

Moreover, the holding company had the only purpose of passing on Amazon’s intellectual property and had no business activity that could justify the royalties’ amounts. With this method, the taxed profits were a quarter less than what they should have been.

4.6.2.3 Final decision

The Commission concluded that the level of royalty payments from AEU to AEHT was inflated and didn’t correspond to reality, and that Luxembourg’s tax ruling made it possible for Amazon to avoid paying great part of taxes, gaining an economic advantage over competitors.

Therefore, Luxembourg has to recover from Amazon €250 million plus interests of unpaid taxes. The tax ruling was active from 2006 to 2014. In 2014 Amazon changed its structure in Europe so that since then the investigation doesn’t apply. [50]