Amazon must pay €250m in back taxes after the European Commission judged the company had enjoyed tax benefits in Luxembourg which were illegal under EU state aid rules.
The EC member in charge of competition, Margarethe Vestager, said in a press conference this morning (Wednesday 4th October) that Amazon’s tax benefits in Luxembourg had reduced its tax bill over eight years from May 2006 to June 2014. Amazon must now repay that tax benefit, €250m plus interest, within four months.
Vestager said: "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others."
An Amazon spokesperson commented: "We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law. We will study the Commission's ruling and consider our legal options, including an appeal. Our 50,000 employees across Europe remain heads-down focused on serving our customers and the hundreds of thousands of small businesses who work with us."
The Commission's decision follows an in-depth investigation launched in October 2014. The EC concluded that Luxembourg's tax ruling, made initially in 2003, had enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company that is not subject to tax (Amazon Europe Holding Technologies). In particular, Luxembourg endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies which significantly reduced Amazon EU's taxable profits. The Commission's investigation showed that the level of that royalty payment was "inflated and did not reflect economic reality".
The operating company was the only entity actively taking decisions and carrying out activities related to Amazon's European retail business, while the holding company was an "empty shell", the Commission concluded.
Vestager said: “The point of having common European rules on state aid is to make sure companies compete on merit, and by offering customers choice and quality; the rules prevent Member States from giving unfair advantages to companies - this distorts competition and is illegal under common European rules. Those rules have been in place since 1958."
Amazon changed the way it operates in Europe in June 2014.