UK and International Tax news

EC Concludes On State Aid Investigation Into Amazon In Luxembourg

Thursday 5th October 2017

Following an investigation launched in October 2014, the European Commission has concluded that Luxembourg granted undue tax benefits of around €250 million to Amazon and has held this to be illegal state aid.

The Luxembourg tax authority’s ruling in favour of Amazon dates back to 2003 and applies to Amazon’s subsidiary Amazon EU Sarl, which accounts for most of Amazon’s European profits. Based on a methodology set by the tax ruling, Amazon EU Sarl pays a tax deductible royalty to a limited liability partnership established in Luxembourg but which is not subject to corporate taxation. As a result, 75% of the European profits of Amazon are not taxed in Luxembourg.

The EC’s state aid investigation concluded that the Luxembourg tax ruling endorsed an unjustified method to calculate Amazon’s taxable profits in Luxembourg. In particular, the level of the royalty payment from the operating company to the holding company was inflated and did not reflect economic reality.

EU state aid rules require that incompatible state aid is recovered in order to remove the distortion of competition created by the aid. There are no fines under EU state aid rules and recovery does not penalise the company in question. It simply restores equal treatment with other companies.

In its decision, the EC has set out the methodology to calculate the value of the competitive advantage granted to Amazon, i.e. the difference between what the company paid in taxes and what it would have been liable to pay without the tax ruling. On the basis of available information, this is estimated to be around €250 million, plus interest. The tax authorities of Luxembourg must now determine the precise amount of unpaid tax in Luxembourg, on the basis of the methodology established in the decision.

In a statement Luxembourg has stated that “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”.

Amazon has responded to the decision by stating that it did not believe that it received any special treatment from Luxembourg and that tax was paid in full accordance with both Luxembourg and international tax law. It will study the Commission’s findings and consider its legal options including an appeal.

 

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