The European Union's competition commissioner Margrethe Vestager issued a recovery order against Amazon on Wednesday over hundreds of millions of euros in back taxes the company avoided by routing its finances through Luxembourg.
"Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed," Vestager said in a statement. "Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules."
Regulators claim Amazon took advantage of these tax benefits from 2006 to 2014. Vestager said this was illegal in the EU, as states can't provide tax benefits to select international companies.
.@amazon tax benefits in Luxembourg are illegal under our common European rules on state aid. Amazon to repay benefits worth around €250 mio
— Margrethe Vestager (@vestager) October 4, 2017
The recovery order will require Amazon to pay the EU approximately 250 million euros ($US294 ($375) million) in back taxes -- not much more than a year after the EU ordered Apple to pay the approximately $US15 ($19) billion it saved by funelling taxes through two Irish subsidiaries.
News of the order first came on Tuesday via the Financial Times, which reported that a nearly three-year investigation by the European Commission had concluded that Luxembourg's sweetheart deal with the retail giant constituted state aid. In 2003, Luxembourg reportedly sent a "comfort letter" to Amazon guaranteeing it a cap on taxable profits; and in 2004, Amazon "moved its intellectual property, such as software and customer data, into a non-taxable Luxembourg partnership."
A Financial Times analysis of Amazon's Luxembourg accounts shows that over the next decade, the EU sites paid the partnership nearly €4bn in royalties for using Amazon's name and know-how. In the same period, Amazon's European operations reported a total profit of €11m on net turnover of about €60bn.
Amazon kept about three billion of the euros in its Luxembourg partnership; the US has sought to recover some of those funds as well.
In 2016, the Guardian reported on the complexity of the scheme, which used a number of tactics (called "Project Goldcrest") to shift profits from various arms of Amazon's global operations to avoid paying higher taxes.
"These findings reveal that not only the multinationals like Amazon abuse the legal insufficiency of the international tax system, but that some states actively help them to do so," former PricewaterhouseCooper auditor Antoine Deltour told the Guardian.
In a statement shared with multiple outlets, Amazon said it plans to appeal. "We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law," the company said.
As the BBC noted, the decision may be rather uncomfortable for European Commission President Jean-Claude Juncker, who was prime minister of Luxembourg at the time the deal was struck.
The finance ministers of some of Europe's leading economies recently signed a letter to the European Commission demanding changes to the way foreign multinationals are taxed, arguing they currently escape paying huge parts of their legal tax burden.