Since June 2013, the EC has been investigating the tax ruling practices of EU member states for compliance with EU state aid law. It extended this information inquiry to all member states in December 2014.

Several decisions have required repayments of tax. In the latest, decided on 4 October 2017, the EC found that Luxembourg granted undue tax benefits to Amazon of around €250 million. This is illegal under EU state aid rules because it allowed Amazon to pay substantially less tax than other businesses. Luxembourg must now recover the illegal aid.

The tax benefits arose out of a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, which according to the EC enabled Amazon to shift the vast majority of its profits from an Amazon group company subject to tax in Luxembourg (Amazon EU) to a company that is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which significantly reduced Amazon EU's taxable profits.

The EC took the view that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the EC concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the ruling enabled Amazon to avoid taxation on three-quarters of the profits it made from all Amazon sales in the EU.

The EC continues to investigate tax ruling practices in the EU, and all companies that use or have used this mechanism need to consider whether the ruling is compliant with the EU state aid rules.