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Amazon ordered to repay €250m by EU over 'illegal tax advantages'

Commission also says it plans to take Irish government to European court of justice over failure to collect €13bn from Apple

4 October 2017, 5:10pm
Amazon has been ordered to repay €250m by EU authorities, following a ruling that the technology company had benefited from illegal and unfair state aid from Luxembourg.

The European commission also announced on Wednesday that it planned to take the Irish government to the European court of justice (ECJ) regarding its failure to collect €13bn in unpaid taxes from Apple, in relation to an earlier ruling.

EU commissioner in charge of competition, Margrethe Vestager, said Luxembourg’s “illegal tax advantages to Amazon” had allowed almost three-quarters of the company’s profits to go untaxed, allowing it to pay four times less tax than its local rivals.

 “This is an illegal practice under EU state aid rules,” Vestager said. “Member states may not grant selective tax concessions to multinational groups to which other companies do not have access.” 

The commission said Amazon had benefited from an illegal tax deal granted by the Luxembourg authorities that allowed the company to artificially reduce its tax bill by €250m from 2006-2014. The company was ordered to repay the full amount, plus interest.

Amazon rejected the findings.

“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. We will study the commission’s ruling and consider our legal options, including an appeal.”

The country’s government said: “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.”

In another speech, Vestager also said that she would be appealing to Europe’s highest court, in order to enforce an earlier ruling against Apple, to ensure that they repaid €13bn in back taxes.

Apple appealed to Europe’s highest court to contest the decision and has not repaid the money to the Irish government. The repayment demand followed an investigation into a ‘sweetheart deal’, granted by Dublin.

Vestager said, on Wednesday, that she would appeal to the ECJ to order Dublin to collect the money. The Irish government, on the other hand, described the decision as “extremely regrettable”, in a statement.

“Irish officials and experts have been engaged in intensive work to ensure that the state complies with all its recovery obligations as soon as possible, and have been in constant contact with the European Commission and Apple on all aspects of this process for over a year.”

The commission’s case against Amazon centres on two subsidiaries incorporated in Luxembourg and controlled by the US parent – Amazon EU group and Amazon Europe Holding Technologies. The latter was described by the commission as “an empty shell” with no employees or offices, but was used to decrease the company’s tax bill.

In 2014, Luxembourg’s role in orchestrating tax avoidance deals for hundreds of global companies, was revealed. It was reported that Amazon could be obliged to pay $1.5bn alone to US tax authorities, which concluded that Amazon’s Project Goldcrest had no benefits “other than avoided US corporate income taxes”.

The case raises questions for European commission president, Jean-Claude Juncker, who served as Luxembourg’s prime minister from 1995 to 2013, and acted as finance minister for a great deal of that period.

The commission launched the Amazon investigation in October 2014, just weeks after Juncker took office, in order to determine whether Luxembourg’s tax treatment had been so generous that it amounted to illegal state aid.

Many European politicians and business groups argue that the generous tax breaks give Amazon an unfair competitive advantage over smaller rivals, prompting the recent announcement of a plan to rewrite EU tax rules. But investigations into unfair state aid run broader, with the EU authorities expected to conclude an inquiry into the fast-food chain McDonald’s in the coming weeks.

The commission has also ruled unlawful tax deals between Starbucks and the Dutch authorities, as well as Fiat’s arrangements with Luxembourg.

The commission said the sweetheart deal with the Irish government allowed Apple to pay a maximum rate of 1%, which fell to 0.0005% in 2014. The usual rate or corporate tax in Ireland is 12.5%.

Setting out her decision to refer the Apple case to the ECJ, Vestager said: “Ireland must recover up to €13bn of illegal aid from Apple. However, more than a year after the adoption of this decision by the commission, Ireland has still not recovered the sum, [not even] in part.”

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