EU orders Amazon to pay $295M in back taxes

Amazon has to pay $295 million in back taxes to Luxembourg, the European Union ordered Wednesday, in its latest attempt to tighten the screws on multinationals it says are avoiding taxes through sweetheart deals with individual EU states.

Margrethe Vestager, the EU official in charge of antitrust issues, also took Ireland to court for failing to collect a massive 13 billion euros ($15.3 billion) in back taxes from Apple Inc.

She argued that, like in Amazon’s case, the company had profited from a deal with the country that had allowed it to avoid paying most of the taxes the EU felt were due.

The EU has taken aim at such past deals, which member states had used to lure foreign companies in search of a place to establish their EU headquarters. The practice led to EU states competing with each other and multinationals playing them off one another.

EU states are now trying to harmonize their tax rules, but Wednesday’s and previous rulings seek to redress years of tax avoidance.

Vestager said that U.S. online retailer Amazon had unfairly profited from special low tax conditions since 2003 in tiny Luxembourg, where its European headquarters are based.

As a result, almost three quarters of Amazon’s profits in the EU were not taxed, she said.

“In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules,” she said. The issue is not so much that the companies got tax breaks but that they were available only to them.

Amazon said it believed it had not received any special treatment from Luxembourg and would consider appealing. “We paid tax in full accordance with both Luxembourg and international tax law.”

EU states like Luxembourg and Ireland that have deals with multinationals are put in difficult positions with such rulings. They don’t want to scare away the companies by hiking their tax bills but also want to fall in line with the EU’s efforts to create an even playing field as well as show taxpayers that big foreign companies are paying their fair share.