Online retail giant Amazon is facing a bill of at least 250 million euros (£221.5 million) in back taxes after the European Commission ruled its tax affairs failed to comply with state aid rules.
Brussels regulators are again striking down on ‘sweetheart’ deals offered to the American retailer – as well as Google and Apple.
The European Commission say a deal struck by Seattle-based company Amazon and Luxembourg amounts to illegal state aid, in its latest crackdown on a multi-national business.
Under the arrangement, Amazon funnels cash made from sales across all its European businesses – including £7.3bn from the UK – through a company based in Luxembourg.
Online retail giant Amazon is facing a bill of at least 250 million euros (£221.5 million) in back taxes after the European Commission ruled its tax affairs failed to comply with state aid rules
This company then pays ‘royalties’ to another entity based there for using the American tech giant’s branding and services, cutting the remaining profits which it can be taxed for.
Meanwhile, the royalties paid to the separate entity are not taxed because it is a type of business not considered a tax resident in Luxembourg.
At the centre of the dispute is how much Luxembourg has allowed to be paid in royalties, because the higher they are the less cash is left in profits to be taxed overall.
Amazon paid just £15m in taxes on £19.5bn in sales across Europe last year, according to its most recent accounts.
Margrethe Vestager, the European Union’s competition commissioner, will now order officials in Luxembourg to go back and charge it higher rates of tax.
The commission launched its investigation into their deal in 2014.
The finding that Luxembourg has allowed Amazon to pay too little tax could be embarrassing for Jean-Claude Juncker, the outspoken president of the European Commission.
Mr Juncker has lectured member countries of the European Union about the importance of having a level playing field for economies across the bloc.
But he was prime minister of Luxembourg when the deal with Amazon was struck, raising questions about how much he knew of the arrangements.
The row with Amazon is the latest move by the commission against American tech giants, who have been accused of using complex company structures to pay less tax.
Apple was handed a record £11.5bn bill for back-taxes in Ireland last year, with Google also handed competition fines of £2.1bn earlier this year.
The crackdown has infuriated politicians in the US, who are trying to repatriate more of the companies’ foreign profits to boost American coffers.
They have threatened retaliation against Europe and warned it could harm investment from across the Atlantic.