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. The issue of corporate tax avoidance became a hot topic in the EU after the financial crisis, when governments had to raise taxes and slash spending to get public finances back into shape.
Luxembourg said it might appeal Wednesday’s ruling, but stressed it is “strongly committed to tax transparency and the fight against harmful tax avoidance.”
Analysts say that beyond claiming the sums of money owed, the EU’s move is meant to create a public awareness of the issue of tax avoidance by multinationals, in effect shaming individual EU states and the companies while the bloc works on harmonizing its tax rules.
“Corporations are sensitive to being positioned as tax avoiders,” said Louise Gracia, a professor at the Warwick Business School who researches tax issues.
The EU investigation was made particularly awkward by the fact that the current European Commission President, Jean-Claude Juncker, was Luxembourg’s prime and finance minister at the time the tax system for Amazon was set up.
“We try to investigate behavior from member states. It is not a criminal investigation trying to incriminate different persons in the positions that they hold,” Vestager said.
Vestager had already ordered Ireland to claw back up to 13 billion euros from Apple last year, but said Wednesday that Ireland hadn’t recovered any money so far.
Ireland, which is appealing last year’s decision, reacted angrily, saying it “is extremely disappointing that the Commission has taken action at this time.” It said it was busy working on the deal and had made “significant progress.”