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

Amazon has been ordered to repay €250m (£222m) in illegal state aid to Luxembourg, as EU authorities continue their campaign against sweetheart deals that help the biggest corporations slash their tax bills.

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

Margrethe Vestager, the EU commissioner in charge of competition, 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 local rivals.

“This is about competition in Europe, no matter your flag, no matter your ownership,” Vestager said, dismissing suggestions she was targeting non-European companies. “Paying taxes is part of doing business in Europe.”

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 to 2014. The company has been ordered to repay the full amount plus interest.

Amazon rejected the findings of the commission investigation. “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 a separate announcement, Vestager said she was appealing to Europe’s highest court to enforce an earlier ruling against Apple to ensure the iPhone maker repaid €13bn in back taxes.

Apple, which has appealed to Europe’s highest court to contest the decision, has neither repaid the money to the Irish government nor placed the money in an escrow account, a standard practice when court proceedings are under way.

Dublin said it disputed the commission’s ruling that it made the wrong decision in the Apple tax deal, but has promised to collect money owed as soon as possible. Citing its “intensive work” on recovering the funds, the Irish government 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,” it said.

EU member states risk multimillion-euro fines when they fail to act on EU competition rulings. In 2015 the commission requested a €20m fine plus daily penalty payments against Italy over the country’s refusal to collect back taxes from Sardinian hotels that had benefited from special deals.

The commission acknowledged that Ireland had begun to work on the recovery of the back taxes, but deems the Irish deadline of “March 2018 at the earliest” not good enough.

The case against Amazon centred 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” that had no employees or offices, but was used to bring down the company’s tax bill.

Amazon EU group, which runs the internet company’s operations in the region, transferred 90% of its operating profits to the holding company, where they were not taxed. As a result, Amazon paid an effective tax rate in Luxembourg of 7.25%, compared with the national rate of 29%.

Amazon’s blueprint was Project Goldcrest, a tax scheme named after Luxembourg’s national bird, based on a 2003 deal with authorities in the Grand Duchy. Amazon changed its tax operations in June 2014, a year after Brussels began investigating tax rulings across the EU.

US authorities have also been investigating Project Goldcrest, but lost in court to the retail firm. In March a court ruled against the Internal Revenue Service, which had argued Amazon owed the US $1.5bn (£1.13bn) in unpaid taxes linked to its Luxembourg companies.

Luxembourg’s role in orchestrating tax avoidance deals for hundreds of global companies was revealed by the Guardian in 2014, raising questions about tax policy in one of the EU’s oldest member states.

The case continues to hang over Jean-Claude Juncker, the European commission president, who served as Luxembourg’s prime minister from 1995 to 2013, and acted as finance minister for much of that period.

The commission launched the Amazon investigation in October 2014, just weeks before Juncker took office, while the fallout over the Luxleaks revelations clouded his early weeks.

Many European politicians and business groups argue 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 Apple case has generated the biggest furore, with the chief executive, Tim Cook, dismissing the claims as “total political crap”.

The commission said the sweetheart deal with the Irish government allowed Apple to pay a maximum tax rate of 1%, which fell to just 0.005% in 2014. The usual rate of corporation tax in Ireland is 12.5%.

If the UK leaves the EU single market, it will not be bound by European rules on fair tax competition. However, any free-trade deal with the EU is likely to constrain the government’s ability to turn the UK into a low-tax haven. Vestager said she was not expecting British government’s to pursue this course: “I don’t see why [UK policy] would change.”


Jennifer Rankin in Brussels

The GuardianTramp

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