Amazon has been ordered to pay Europe €250 million (£221 million, $294 million) over unpaid back taxes.
The European Union’s competition commissioner, Margrethe Vestager, said Luxembourg “gave illegal tax benefits to Amazon.”
LONDON — Amazon has been ordered to pay about €250 million (£221 million, $294 million) in back taxes in Europe after a European Commission investigation found that the company had an illegal tax deal in Luxembourg.
The Commission found that Luxembourg had breached its rules on state aid by allowing Amazon’s tax-minimising setup since 2003. The heart of the problem is “transfer pricing,” in which one Amazon subsidiary will charge another subsidiary for goods or services.
The knock-on effect is that Amazon’s taxable profits will sit in the country with the lowest corporate tax rate. It is legal under European Union law as long the prices being charged by the group companies stack up with the market price.
The investigation involved an Amazon subsidiary in Luxembourg, Amazon EU SARL, which accounts for the bulk of the company’s European profits but pays royalties to another Amazon subsidiary, Amazon Europe Holding Technologies, not subject to corporate tax.
“The Commission’s investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the Commission concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules,” the European Commission said in a statement.
The upshot? “The ruling enabled Amazon to avoid taxation on three-quarters of the profits it made from all Amazon sales in the EU.”
‘Illegal under EU State aid rules’
In a statement, the EU’s competition commissioner, Margrethe 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.”
She added: “This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.”
Amazon will now have to pay back about €250 million, covering the eight years that the tax structure was in place — plus interest. (Vestager could not give a figure for interest but said “these are not big sums.”) The Commission disputes that the €250 million figure is a fine, arguing that it is simply the recovery of state aid and “does not penalise the company in question.”
Amazon, however, said it did not believe it had received special treatment and was considering an appeal. In a statement, the American firm said (emphasis ours):
“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 Luxembourg government, meanwhile, said it “considers that the company has not been granted incompatible State aid.”
The ruling is yet another indicator that the Commission is prepared to crack down on powerful Silicon Valley companies.
In August 2016, Apple was ordered to pay the EU an eye-watering €13 billion (£11.1 billion; $14.5 billion) in back taxes, just like Amazon.
On Wednesday, the European Commission also referred Ireland to court over its failure to recoup these back taxes.
Vestager this year also fined Google a record-breaking €2.4 billion (£2.1 billion, $2.7 billion) for promoting its own shopping service over rivals’.
“We are doing this because people are angry,” Vestager said.
But the commissioner denied any accusations of bias in a press conference on Wednesday morning. “I can find no bias — this is about competition in Europe, no matter your flag, no matter your ownership,” she said. “Paying your tax is part of doing business in Europe.”