The European Commission has continued its crackdown on major multi-national corporations that have been allegedly manipulating tax laws in the European Union (EU) for a number of years and paying lower taxes.
The Commission ruled on October 4 that Luxembourg must collect €250 million in back taxes from U.S online giant Amazon.
The Commission launched a detailed investigation into the matter on October 2014 to examine a tax ruling made by Luxembourg in 2003 that granted Amazon massive tax privileges which was extended till 2011. The lower tax rate imposed on Amazon had no justification and the same privilege wasn’t extended to other businesses.
As a result, Luxembourg has to now recover €250 million from Amazon based on the ruling issued by Margrethe Vestager, the commissioner who heads the competition policy.
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In a statement, Vestager said
Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member States cannot give selective tax benefits to multinational groups that are not available to others.
Amazon EU which is subject to tax in Luxembourg managed to shift a vast portion of its profits to Amazon Europe Holding Technologies which is not subject to tax and avoided paying taxes on a significant portion of its profits. The Luxembourg tax ruling allowed Amazon EU to make royalty payments to Amazon Europe Holding Technologies which were inflated according to the Commission’s findings and was not a true reflection of market conditions. The ruling states that Amazon was able to avoid paying taxes on 75 percent of its profits made from EU sales.
Tax laws in Luxembourg require the operating company to remit taxes while holding companies are not subject to taxes as they are considered limited partnerships. The holding company is subjected to tax based on the level of its partners and not based on the holding company. For Amazon, the holding company was in the United States.
Amazon has claimed that it has not violated any tax laws in Luxembourg and is most likely to file an appeal. The European Commission ruled in 2016 that Ireland had granted Apple similar tax privileges and ordered Ireland to recover nearly $15.2 billion in taxes from Apple. Ireland hasn’t recovered any money so far and as a result has been taken to court by the Commission.