The European Commission concluded on Wednesday that Luxembourg granted illegal tax benefits to Amazon.com, Inc. (NASDAQ: AMZN) of roughly €250 million or approximately $293 million. The Commission now says that Luxembourg must now retrieve back all the illegal benefits given.
From an investigation back in October 2014, the Commission said that Luxembourg lowered Amazon’s tax rate from May 2006 and June 2014 without “any valid justification.”
Commission Margrethe Vestager said, “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.”
The investigation showed that Amazon was shifting a significant amount of its profits from the main operating company that is subject to be taxed in Luxembourg (Amazon EU) to a holding company (Amazon Europe Holding Technologies), which is not subject to tax.
Under the Luxembourg general tax laws, it states that the operating company must pay taxes, while holding subsidiaries of companies are not a “legal form”, meaning they are not required to pay taxes.
Amazon Europe Holding Technologies is a limited partnership with no employees, offices, or any business activity. It’s simply just a link between the main branch in the U.S. to the one in Europe. The holding company basically only grants an exclusive license to intellectual properties to the operating company, which uses it to operate on Amazon's European retail business.
Amazon responded to the Commission’s decision that it believes that it did not receive any special benefits from Luxembourg and that it paid tax in "full accordance with both Luxembourg and international tax law."
Under EU State guidelines, it requires that “incompatible State aid is recovered in order to remove the distortion of competition created by aid.” Although, under the EU rules, there are no fines that regulate a situation like this. It requires the parties involved to “simply restore equal treatment.”
Authorities said they used their best discretion and analyzed the situation properly to address the matter. Authorities said that because the treatment between Amazon and Luxembourg happened nearly a decade ago, it was hard to assess the decision.
"The decision of the Commission refers to a period going back to 2006. Over time, both the international and the Luxembourg legal frameworks have substantially evolved," Luxembourg authorities said.
The Commission calculated the fine Amazon must pay, which was the difference between what the company had paid in taxes and what it would have been liable to pay without the tax exemption. Tax authorities are now trying to determine the exact amount of unpaid tax in Luxembourg.