Luxembourg accused of giving Amazon €250m in illegal tax benefits

4 Oct 2017

Image: Takashi Images/Shutterstock

Europe is taking it to the tech giants of late with Amazon now accused of benefitting from illegal tax benefits in Luxembourg.

After a three-year investigation, the European Commission (EC) has ruled that Luxembourg gave Amazon illegal tax breaks worth €250m in what was effectively State aid, contradicting EU law.

The investigation found that the tax breaks were issued between 2003 and 2011, effectively lowering the e-commerce giant’s annual bill to the country without any valid reason for doing so.

This framework allowed Amazon’s Luxembourg-based operation – known as Amazon EU – to channel a significant portion of its profits to another company called Amazon Europe Holdings Technologies to circumvent the country’s tax laws.

The EC added that the level of the royalty payments, endorsed by the tax ruling, was inflated beyond any economic reality and that Amazon was able to avoid taxation on 75pc of the profits it made from all sales in the EU.

Following the ruling, Luxembourg has been ordered to recoup €250m in back taxes, plus interest.

European commissioner Margrethe Vestager said of the decision: “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.”

Amazon’s ‘empty shell’

What drew criticism from the EC in particular was the fact that the holding company used by Amazon, Amazon Europe Holdings Technologies, was simply an “empty shell”.

“The holding company was not itself in any way actively involved in the management, development or use of this intellectual property,” the EC said. “It did not, and could not, perform any activities to justify the level of royalty it received.”

Amazon currently employs around 1,500 people in the small nation and, in a rebuttal to the EC’s accusations, claimed no wrongdoing.

“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,” the company said via a statement.

This ruling follows last year’s orders from the European Commission that Apple foots an estimated €13bn tax bill in Ireland. One year on, the EC resolved today (4 October) to refer Ireland to the European Court of Justice for failing to implement its decision.

The Irish Government subsequently issued its own statement declaring the action “wholly unnecessary”.

Colm Gorey was a senior journalist with Silicon Republic