On Wednesday 4 October, the European Commission ordered Amazon to pay back €250 million plus interest to Luxembourg , having benefited from a tax arrangement similar to state aid unlawful under EU law.
The Commission's decision follows the launch of an in-depth investigation on 7 October 2014 (see EUROPE 11171), concerning an advance tax decision made by Luxembourg in 2003 and renewed in 2011, allowing the American company to reduce the level of its taxes between 2006 and 2014.
At the time, Amazon was present in Europe through two companies under Luxembourg law. The first, Amazon EU, operated its parent company's retail sales activities and was responsible for all commercial activities in Europe. This operating company was subject to tax in Luxembourg.
Amazon Europe Holding Technologies, for its part, was a limited partnership with no offices, employees or commercial activity anywhere on European soil, serving as an intermediary between Amazon EU and the parent company in the United States to transfer intellectual property rights to the operating company.
Up to 2014, the latter was also required to pay an amount to the parent company in the United States as a contribution towards intellectual property development costs, by virtue of a sharing agreement. And unlike the operating company, this holding company was not subject to tax in Luxembourg.
The Luxembourg advance tax decision referred to in this decision approved the transfer of the majority of the profits of the operating company, Amazon EU, to the holding company, Amazon Europe Holding Technologies in 2003, by means of a royalty on the intellectual property rights.
The European Commission has examined these royalties to verify that they corresponded to economic reality, and found that the activity of the holding company, which it described as an “empty shell”, was insignificant with regard to the amount paid by Amazon EU in royalties. These amounts represented nearly 91% of the operating profits of that company, with just 9% remaining taxable in the EU, whereas Amazon EU should have paid tax on 36% of them. This meant that Amazon EU was able to redirect around three quarters of its profits into the holding company. Furthermore, the royalties represented 1.5 times the amount that Amazon Europe Holding Technologies paid to Amazon in the US in the framework of the sharing agreement.
The Commission therefore considered that the advance tax decision allowed Amazon to pay less tax than other companies, which therefore constitutes unlawful state aid. Amazon now has four months to return the sum of €250 million, the amount it should have paid to the Luxembourg state, plus interest.
Amazon and Luxembourg not ruling out an appeal
The American company has reacted to the Commission's announced decision. It argues that it “did not receive any special treatment from Luxembourg”, as the tax it paid was “in full accordance with both Luxembourg and international tax law”. It also announces that it will study the decision and consider possible legal recourse.
This analysis is shared by the Luxembourg authorities, which take the view that the regime applicable to Amazon between 2006 and 2014 was appropriate, whilst Luxembourg legislation has evolved since then. Luxembourg also reserves the right to appeal against the Commission's decision.
For her part, MEP Eva Joly (Greens/EFA, France) has welcomed the decision, stressing that everyone must pay their fair share of taxes. This was echoed by the European Network for Debt and Development, which argues that it is time to reform the tax system so that companies “pay their fair share of tax” where they are supposed to pay it. (Original version in French by Lucas Tripoteau)