On 4 October 2017, the European Commission announced its decision that Amazon had been granted illegal state aid by Luxembourg pursuant to a 2003 tax ruling. All Amazon’s European sales, and related profits, were recorded in Luxembourg (through its Luxembourg-incorporated operating company (OpCo)). The amount of illegal state aid (ie the amount of tax unpaid as a result of the illegal state aid) has been estimated by the Commission at €250m, plus interest.

This is the latest finding of the Commission coming out of its investigation, commenced in 2013, into whether tax rulings issued by certain member states amount to the granting of illegal state aid to certain high-profile multinational groups.

Essentially, the Commission has decided that the tax ruling issued to Amazon allowed it to pay less tax than other companies subject to the same tax rules in Luxembourg (for the period from May 2006, when the structure was implemented, to June 2014, when Amazon changed the structure). According to the Commission, the endorsement by the Luxembourg tax authority of an “inflated” royalty payment from OpCo to another Luxembourg Amazon subsidiary (a limited partnership not subject to tax under Luxembourg law), enabled Amazon to shift the vast majority of its (otherwise taxable) profits outside the scope of the Luxembourg tax net. The Luxembourg limited partnership licensed intellectual property rights to OpCo.

The Commission press release can be viewed here.