Amazon slapped with EU order to pay Luxembourg more than €250 million in back taxes

The commission also is suing Ireland for foot-dragging to recover €13 billion-bill from Apple

EU Competition Commissioner Margrethe Vestager said “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." Frank Augstein/APShow less

Amazon.com was hit by a European Union order to pay €250 million plus interest in back taxes to Luxembourg as the world’s biggest online retailer became the latest US giant to fall foul of the bloc’s state-aid rules.

The European Commission also said it’s suing Ireland for foot-dragging in its efforts to recover “even part” of last year’s record €13 billion-bill from Apple. The Irish finance ministry attacked the EU’s decision to go to court as “wholly unnecessary.”

“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 Competition Commissioner Margrethe Vestager said in an emailed statement. These were “illegal tax benefits” as a result of which “almost three-quarters of Amazon’s profits were not taxed.”

The Amazon decision adds to a growing list of scalps for Ms Vestager in her crackdown on tax loopholes. It follows the 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.

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In the Amazon case, the EU concluded that the level of the royalty payments, endorsed by the tax ruling, was inflated and “did not reflect economic reality.” The structure at issue in the EU probe was in place from May 2006 to June 2014, the commission said. The company then changed to a new structure that is outside the scope of the commission’s state aid investigation.

Fresh from levying record antitrust fines on Google, Ms Vestager has insisted she’s not singling out American companies, pointing to European firms that have been penalized. But moving against Amazon and McDonald’s also risks further stoking tensions with the US, which is still sore over the Apple ruling.

As the EU seeks to fix loopholes it says allowed the likes of Amazon and Apple to pay less than their fair share, US president Donald Trump is weighing plans to rein in revenue lost when companies shift profits to tax havens. The proposals would allow US companies to bring back, or repatriate, years’ worth of foreign earnings after paying a low tax rate.

Amazon, which said it will have 65,000 employees in Europe by the end of this year, of which about 1,500 in its European base in Luxembourg, denied receiving 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.”

Luxembourg, which has gained a reputation for doling out special deals to big firms in the Grand-Duchy, denied Amazon had been given unfair treatment.

Luxembourg’s finance ministry said it “will use appropriate due diligence to analyze the decision and reserves all its rights” but that it has been  “fully cooperating with the commission” during the probe.

The decision “refers to a period going back to 2006,” Luxembourg said. “Over time, both the international and the Luxembourg legal frameworks have substantially evolved. As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible state aid.”

The EU is also poised to rule on McDonald’s tax affairs in Luxembourg in the coming weeks, according to three people familiar with the cases who spoke on condition of anonymity. Competition watchdogs are also weighing a more general crackdown on special tax deals that EU countries offer big corporations.

The EU commission “is maybe reaching the end of the beginning of the process, but certainly not the beginning of the end,” Gert-Jan Koopman, the authority’s deputy director-general for state aid, said Sept. 26 at a conference in Brussels. He called the crackdown a “long-term, crucial priority.”

Starbucks and a Fiat Chrysler Automobiles unit were the first companies targeted by the EU, in 2015 ordered to repay as much as €30m each to the Netherlands and Luxembourg respectively. The following year, 35 companies including Anheuser-Busch InBev had to pay as much €700m in total back to Belgium.

Appeals have been piling up at the EU courts, and lawyers are waiting on rulings to establish legal precedents on the use of state-aid law.

In the Apple case, part of the delay may stem from negotiations over the terms of the escrow account, as Ireland sought an indemnity to make sure it isn’t liable for any drop in the value of the fund while the case winds its way through the EU courts. In the end, it was agreed that Ireland and Apple will jointly choose investment managers, a decision which could sidestep the need for a formal indemnity.

Once it’s collected, Irish authorities were planning to place the money in an escrow account pending an appeal. If the appeal, which could take as long as five years, is successful, the money will be returned to Apple. The government is seeking managers to invest the money while the appeal is going on.

"I hope that both decisions are seen as a message that companies must pay their fair share of taxes as the huge majority of companies do,” Ms Vestager said during a press conference in Brussels on Wednesday.

The Irish finance ministry hit back, saying the country has made “significant progress on this complex issue and is close to the establishment of an escrow fund, in compliance with all relevant Irish constitutional and European Union law.”