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E.U. makes its case against Amazon – and it ain’t pretty

Jean-Claude Juncker to head EU CommissionJean-Claude Juncker to head EU Commission
Jean-Claude Juncker, the man who approved Amazon's tax deal, is now in charge of the body investigating it. Photograph by Dursun Aydemir — Anadolu Agency/Getty Images

The European Union’s Commission Friday laid out its case against Amazon.com’s (AMZN) tax deal with Luxembourg, fleshing out the allegations it first made six months ago.

The Commission’s inquiry is one of four test cases regarding ‘sweetheart’ deals by countries with multinational companies which it suspects have been abused to avoid paying billions of euros in taxes over the years (two of the others involve Starbucks Corp. (SBUX) in the Netherlands and Apple Inc. in Ireland (AAPL).

If the Commission can prove that the deals distort the E.U.’s single market, then the companies affected will lose highly favorable tax treatment that has bolstered their profits by billions of dollars over the years.

Amazon’s deal has a particular political charge, in that the Luxembourg Prime Minister who approved it and hundreds more like it, Jean-Claude Juncker, has since become the head of the European Commission, which makes him the man responsible for drafting new E.U. legislation. Juncker’s policy while head of the Grand Duchy has come in for sharp criticism since a large-scale leak documenting the widespread use of Luxembourg-registered companies to cut their tax bills.

The Commission said in a 23-page explainer of its case that it considered Amazon’s deal to be based on bad evidence, inappropriate methods and an unjustifiable use of royalty payments to shift recorded profits to another Luxembourg-based affiliate that isn’t liable to Luxembourg or U.S. taxes.

“The Luxembourgish authorities confer an advantage on Amazon,” the Commission said, adding that it considered the arrangement incompatible with the E.U.’s single market.