EU Hits Amazon With Unpaid Tax Bill, Will Sue Ireland For Failing To Collect Apple Taxes

Amazon was hit with an order to repay as much as €250 million, plus interest, after the European Commission said Luxembourg illegally slashed the company's bill, making the world’s biggest online retailer the latest U.S. giant to fall afoul of the EU's state-aid rules.

“Luxembourg gave illegal tax benefits to Amazon” and “as a result, almost three-quarters of Amazon’s profits were not taxed,” EU Competition Commissioner Margrethe Vestager said in an emailed statement, adding that “Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules” and “this is illegal under EU State aid rules.”

EU explained that the Luxembourg tax ruling given to Amazon in 2003 and prolonged in 2011, lowered the online retail giant's tax paid in the country “without any valid justification.” The Luxembourg tax pact gave Amazon a “selective economic advantage” by allowing the online retailer’s group “to avoid taxation on three-quarters of the profits it made from all Amazon sales in the EU,” EU says in statement.

Explaining the decision, Vestager told reporters that “what we did investigate is the method to determine the royalty paid by the operating company to the holding company" and said that "the royalty payment level "could not be justified for two reasons. First, the holding company was an empty shell. Second, the operating company was the only company actively taking positions, carrying out activities relating to amazon’s European retail business”

Tax ruling was based on an “unjustified method to calculate Amazon’s taxable profits in Luxembourg,” reducing them to a “quarter of what they were in reality,” the EU said, and noted that Luxembourg will have to determine the exact amount it will have to recover from Amazon, based on the EU’s methodology.

As Bloomberg notes, the Amazon decision adds to a growing list of scalps for Margrethe Vestager in her crackdown on tax loopholes, and follows the controversial Apple decision last year, which reverberated across the Atlantic with the EU accusing Ireland of granting unfair deals that reduced the company’s effective corporate tax rate. At stake in all these decisions are billions of euros that multinational companies have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their sales.

And just like Apple, shortly after the EU announcement, Amazon denied it had received special treatment: “We paid tax in full accordance with both Luxembourg and international tax law,” Amazon said in an emailed statement. “We will study the commission’s ruling and consider our legal options, including an appeal.”

Separately, the European Commission also said it would sue Ireland over its failure to collect as much as €13 billion in back taxes owed by Apple following an order last year and refers case to EU court.

“More than one year after the commission adopted this decision, Ireland has still not recovered the money,” EU Competition Commissioner Margrethe Vestager says in emailed statement.

Ireland had until Jan. 3 deadline to recover tax EU said was owed by Apple. Although Ireland has made progress on the calculation of the exact amount of the illegal aid granted to Apple, it is only planning to conclude this work by March 2018 at the earliest, EU says. The Commission therefore decided to refer Ireland to the EU Court of Justice.