In an echo of last year’s explosive ruling that Ireland should claw back €13 billion in unpaid taxes from Apple, antitrust chief Margrethe Vestager said Wednesday that Luxembourg had granted Amazon (AMZN) illegal state aid by giving it a sweetheart deal on its taxes.
“Luxembourg gave illegal tax benefits to Amazon,” she said in a Wednesday statement.
“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. This is illegal under EU state aid rules. Member states cannot give selective tax benefits to multinational groups that are not available to others.”
Separately, Vestager also said the European Commission was taking Ireland to the Court of Justice of the European Union for its persistent failure to reclaim those unpaid Apple taxes. “More than one year after the Commission adopted this decision, Ireland has still not recovered the money, also not in part,” she said.
In the Amazon case, the company won a Luxembourg tax ruling in 2003 that allowed it to pay lower taxes. The ruling was extended in 2011—all of this has proved embarrassing for current European Commission president Jean-Claude Juncker, as he was prime minister of Luxembourg at the time of both rulings.
Those rulings essentially meant official Luxembourgish endorsement for Amazon’s European financial structure, to which the tiny country has been key.
Amazon has two Luxembourg-based subsidiaries: Amazon EU, which operates the company’s European retail business, and Amazon Europe Holding Technologies, which acts as an intermediary between Amazon EU and the U.S. parent—and which the Commission described as an “empty shell.”
When someone buys something from any of Amazon’s EU websites, they are contractually buying it from Amazon EU, which records the sales and the associated profits. The holding company holds the rights to Amazon’s intellectual property, and it licenses that IP to Amazon EU, with the revenues going to the U.S. parent through a “cost-sharing” agreement.
Amazon EU pays corporate tax but, as a limited partnership, Amazon Europe Holding Technologies does not. The operating company’s payments to the holding company were on average more than 90% of its profits, which—according to the Commission—was one-and-a-half times higher than what the holding company needed to pay to Amazon in the U.S. under the cost-sharing agreement.
“Under the method endorsed by the tax ruling, the operating company’s taxable profits were reduced to a quarter of what they were in reality,” the Commission said. “Almost three quarters of Amazon’s profits were unduly attributed to the holding company, where they remained untaxed. In fact, the ruling enabled Amazon to avoid taxation on three quarters of the profits it made from all Amazon sales in the EU.”
The Commission isn’t after any fines; it just wants Luxembourg to recover the €250 million in tax revenue that it should have charged in the first place—plus interest. This is notably lower than the Commission’s estimate a year ago, which suggested that €400 million would need to be repaid.
“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 in a statement. “We will study the Commission’s ruling and consider our legal options, including an appeal.”
The EU executive has previously issued a similar ruling against Luxembourg regarding its taxation of car-maker Fiat.