Amazon sets up Israeli subsidiary, charges VAT

Amazon Photo: Shutterstock

From July 1, Amazon cloud computing services will start billing its customers in Europe, Africa, and the Middle East, including Israel, for VAT.

International companies are now getting used and implementing the views of tax authorities worldwide on taxation of multinational Internet companies. Amazon (cloud computing services) has notified all of its customers in Europe, Africa, and the Middle East that starting on July 1, it will begin billing its customers in these regions for VAT, including its Israeli customers. Amazon is therefore falling in line with a global trend towards taxing multinational companies operating on the Internet and providing services in countries where the company is not registered and has no physical branches.

Amazon followed this measure by founding a company to serve as its branch in Israel and issue invoices to the company's Israeli customers. According to figures from the Registrar of Companies, Amazon was registered in Israel in March 2018. A report was submitted to the Israel Tax Authority when the subsidiary was founded and the company opened a file as a licensed dealer.

The measure is following the exposure of other Amazon structures in Israel, but Amazon and Amazon Web Services (AWS) are run independently, and there is not necessarily any connection between them.

"Greetings from AWS," Amazon wrote in its e-mail, in which it notified customers, "Starting on July 1, all of the issuing of invoices and payment of your accounts in Europe, the Middle East, and Africa will be provided through our European AWS unit (AWS Europe)."

Amazon ostensibly also answered the companies' obvious question about the significance of the measure. "How will this affect you?" the message says, and answers, "the invoices will include VAT for invoices in Belgium, Denmark, Finland, France, Germany, Ireland, Israel, Italy, Luxembourg, the Netherlands, Poland, Portugal, Spain, Sweden, Switzerland, and the UK.

"The customer agreement with AWS has been revised. AWS Europe will replace Amazon's cloud computing services as a party in the contract on invoices in Europe, the Middle East, and Africa. By continuing to use AWS's services after July 1, 2018, you are thereby consenting to be a customer under this revision, which you can view here."

The e-mail sent by Amazon requires customers to update their payment particulars and particulars of their accounts with the tax authorities in order to prepare for the change. The announcement also invites the customers to enter a file a questions and answers that supposedly clarify all the technical and substantive matters resulting from the measure, which Amazon believes will soothe its customers.

The response of some Israeli companies, however, was in no way calm. In response to the e-mail, some of Amazon's cloud computing customers asked the company why its tax policy was suddenly changing. Most of the companies involved, including hundreds of Israeli high-tech companies paying tens or hundreds of thousands of dollars for Amazon's cloud computing services, fear that they will be unable to deduct the VAT paid to Amazon.

Representatives of Amazon spoke with a number of high-tech companies in Israel in recent days in order to give them exactly the same explanation. The companies were told that Amazon would issue its invoices through an Israeli company that would be Amazon's branch in Israel and would issue invoices to the Israeli companies billing them for 17% VAT in accordance with the VAT rates in Israel. Through this invoice, they will be eligible to receive a full VAT credit. Customers were also informed that they could deal with either Amazon in the US or the European Amazon.

Tax Authority sources told "Globes" that they were unaware of Amazon's intention of being registered in Israel and starting to report to the Tax Authority here.

Published by Globes [online], Israel business news - - on May 15, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Amazon Photo: Shutterstock
Amazon Photo: Shutterstock
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