MARGRETHE VESTAGER’S assault on technology firms she deems to have improperly massaged down their tax bills continued this week with a tilt at Amazon. The internet retailer faces a bill of €250m ($293m) for back taxes over what the European Union’s competition commissioner considers to have been an illegal sweetheart deal with Luxembourg.
The order requiring the Grand Duchy to recover the money follows a well-publicised three-year investigation. It is the latest in a series of tax-avoidance cases brought by the European Commission against multinationals, most of them American. Last year, Ireland was ordered to recover €13bn from Apple—smashing all past records for EU corporate-tax cases.
As with Apple, the commission concluded that Amazon received illegal state aid—in the retailer’s case between 2006 and 2014—through a tax-cutting arrangement that was unavailable to its rivals. This came in the form of a ruling from Luxembourg’s tax authority, known as a “comfort letter”.
Amazon accordingly moved intellectual property of various types into a Luxembourg partnership that served as an intermediary between Amazon’s European operations—whose headquarters was a separate Luxembourg entity—and its American parent. As a partnership, the go-between was not subject to tax under Luxembourg law (the statutory corporate rate is 29.22%). The European operating company was.
The operating company was required to pay to the partnership substantial royalties for, among other things, the right to use the Amazon name, thereby shifting lots of profit to the untaxed entity. The commission argues that the level of royalty payments was inflated and did not reflect economic reality. It says the arrangement allowed Amazon to avoid tax on three-quarters of all profits on its sales in the EU (which the company does not disclose).