The European Union determined that an agreement Amazon had with Luxembourg allowed the company to avoid paying taxes for years on three-quarters of its European profits.
The European Union on Wednesday said Amazon must pay about $295 million in back taxes, determining that an agreement with Luxembourg had allowed the company to avoid paying taxes for years on three-quarters of its European profits.
The EU has been cracking down on multinational companies that, in its view, are avoiding taxes through deals with individual member states. Unlike in the U.S., where states often use specially tailored tax breaks to attract and keep companies, EU rules classify such sweetheart deals as illegal state aid that distorts corporate competition.
Amazon’s operations have been under investigation for three years, with the EU scrutinizing a 2003 agreement between the company and Luxembourg that laid out how Amazon’s European operations would be taxed.
Amazon said in a statement that it didn’t believe it had received special treatment. “We paid tax in full accordance with both Luxembourg and international tax law,” Amazon said. The company is reviewing the ruling and considering its options, including, potentially, an appeal.
Luxembourg also said it may appeal Wednesday’s decision, and added that it is “strongly committed to tax transparency and the fight against harmful tax avoidance.”
Countries around the world have been cracking down on companies that curb their tax bills through the use of tax havens and maneuvers that funnel income from the places it is earned to holding companies.
The EU — under the leadership of Commissioner Margrethe Vestager, who oversees antitrust issues — has led that charge.
Vestager took Ireland to court for failing to collect a massive 13 billion euros ($15.3 billion) in back taxes that the EU says Apple owes.
In 2015, the EU determined that Starbucks had artificially lowered its profits by routing income through a Dutch subsidiary that had its own tax deal with national authorities there.
Though Microsoft has not been a public target of the main EU tax-avoidance probe, the company’s operations from Australia to China and Spain have come under the scrutiny of national tax agencies.
“The bottom line in every case is that U.S. firms are going to be paying more tax to the host countries around the world in which they do business,” said Edward Kleinbard, a law professor at the University of Southern California who studies tax issues and has been critical of corporate tax avoidance. “That is clear.”
Amazon, the EU said in presenting the results of its probe Wednesday, formerly had two main subsidiaries in Luxembourg, the tiny Grand Duchy wedged between France, Belgium and Germany.
Amazon EU was the company’s European headquarters, the firm that, on paper, was the seller of goods on Amazon websites across the continent. The other subsidiary was Amazon Europe Holding Technologies, an entity with no employees or activities.
In an arrangement common to U.S. technology firms, the holding company’s function was to acquire the rights to Amazon’s intellectual property from the U.S. parent, and license it to the European subsidiary.
In exchange for the right to sell Amazon’s products, Amazon EU paid the holding company more than 90 percent of its operating profit between 2006 and 2014, the EU said. That sum went on to the U.S. parent to finance research and development and as profit, untaxed in the EU. (In the U.S., the tax liability on that income was deferred, the EU said )
The agreement that made that possible “enabled Amazon to pay substantially less tax than other companies,” the EU said.
The $295 million (250 million euros) tax bill is the amount the EU estimates Amazon garnered from that advantage, plus interest.
Amazon ended that particular structure in mid-2014, the EU said.
The company retains its European corporate headquarters, with about 1,500 employees, in Luxembourg. But subsidiaries in individual European countries now record more sales in those countries, potentially opening Amazon up to larger local tax bills.
The company’s newer structure is outside the scope of the EU’s state aid probes.