The European Union has ordered Amazon to pay 250 million euros, or about $294 million, plus interest, to the country of Luxembourg, where Amazon’s European operations are located.
This came after EU Commission found that Amazon benefited from an illegal tax arrangement with Luxembourg. Turns out Luxembourg gave illegal tax benefits to Amazon worth around EUR 250 million. On Wednesday, EU regulators, who are cracking down on U.S. tech giants’ abilities to avoid higher tax rates by organizing in tax haven nations, imposed a massive tax penalty on the tech giant Amazon.
“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. “Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed.”
The EU Commission opened the investigation into Amazon’s tax affairs in October 2014. They ruled that Luxembourg unfairly helped Amazon for over eight years by allowing the company to essentially split into two. One part of Amazon was making money by selling stuff online, the other was a holding company collecting royalties on its brand. Only the first company paid taxes in Europe. The second firm was a shell company with no employees, offices or business activities. Vestager said the arrangement did not reflect economic reality and resulted in a much lower tax bill.
Amazon (AMZN, Tech30) denied that it received special treatment from Luxembourg and said that it “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,” it said in a statement.
Luxembourg said on Wednesday that it doesn’t consider its arrangement with Amazon illegal.
Luxembourg government said in a statement: “Amazon has been taxed in accordance with the tax rules applicable at the relevant time.
The EU is seeking to fix the tax loopholes that allow foreign companies to avoid higher tax rates. Its latest proposal involves taxing companies at a rate where the goods are sold, not where the company’s operations are located. In recent years, the Commission has cracked down on tax loopholes across the EU, targeting a series of big multinationals and investigating whether they had received illegal state aid.
In 2016, Apple was slapped by a huge tax bill when the EU ordered Ireland to recover up to €13 billion ($15 billion) from the tech company. In 2015, the Commission ruled that Fiat Chrysler and Starbucks owed €20 to €30 million ($23.5 to $35 million) in back taxes. The Commission is also investigating the tax arrangements of McDonald’s in Luxembourg.
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