State aid: Commission finds Luxembourg gave illegal tax benefits to Amazon worth around €250 million

Updated on May 25, 2022

Luxembourg has been found guilty by the European Commission of giving Amazon illegal tax advantages of approximately €250 million. Amazon was able to pay far less tax than other businesses because of this, which is against EU State aid standards. Luxembourg is now obligated to recoup the illicit aid it received.

Competition policy Commissioner Margrethe Vestager made the remarks “Amazon received improper tax breaks from Luxembourg. There were no taxes on 73 percent of Amazon’s profits. As a result, Amazon was exempt from paying four times as much tax as other local businesses that were subject to the same national tax rules as Amazon. This is against EU State aid regulations. Member States are prohibited from giving multinational corporations preferential tax treatment that is not available to other taxpayers.”

The European Commission has found that a tax judgement given by Luxembourg in 2003 and extended in 2011 decreased Amazon’s tax in Luxembourg without any reasonable justification following an in-depth inquiry began in October 2014.

Profits were transferred from an Amazon group firm that was taxed in Luxembourg (Amazon EU) to a company that wasn’t taxed (Amazon US) (Amazon Europe Holding Technologies). Amazon EU’s taxable revenues were dramatically decreased as a result of the tax judgement, which supported the payment of a royalty to Amazon Europe Holding Technologies by Amazon EU.

Tax rulings endorsed by the Commission were found to be overstated and did not reflect the reality of the economy. Because Amazon was allowed to pay less tax than other companies subject to the same national tax rules, the Commission decided that the tax judgement gave the company a selective economic advantage. Amazon was able to avoid paying taxes on three-quarters of its revenues from EU Amazon sales as a result of the judgement.

Amazon’s structure in Europe

Two firms in the Amazon group, Amazon EU and Amazon Europe Holding Technologies, were the subject of the Commission’s judgement. Both firms have their headquarters in Luxembourg and are wholly owned by, Inc., the company’s US parent.

A subsidiary called Amazon EU (the “operation company”) is responsible for running Amazon’s European retail business. When Amazon first launched its European websites in 2007, it employed more than 500 people to choose and purchase things, as well as to manage the online sale and delivery of goods to customers. Customers buying products from any of Amazon’s European websites were contractually purchasing them from the operational company in Luxembourg, thanks to the way Amazon set up their European sales operations. Using this method, Amazon registered all of its European sales and earnings in Luxembourg.

There are no staff, no offices, and no business activity at Amazon Europe Holding Technologies (the “holding company”), which is a limited partnership. An intermediary between the operational firm and Amazon in the United States is provided by the controlling company. Cost-sharing agreements with Amazon in the United States allow it to retain some intellectual property rights in Europe. This intellectual property is not actively used by the holding business. There is no transfer of ownership; rather, the running company gets an exclusive licence to utilise Amazon’s intellectual property in the European retail market.
The holding company contributes annually to Amazon’s intellectual property development costs under a cost-sharing arrangement. In recent years, a US tax court has ruled on the acceptable amount of these payments.

The operating company is taxed in Luxembourg because of its legal form, a limited partnership, whilst the holding company is not because of its legal structure.

To avoid double taxation, the holding company’s profits are only taxed at the level of its individual partners. The partners of the holding firm are all based in the United States and have thus far delayed paying any taxes.

Between May 2006 and June 2014, Amazon developed this structure, which was endorsed by the tax judgement under examination, During the month of June 2014, Amazon made a major shift in its European operations. In this new arrangement, the Commission’s State aid investigation does not apply.

The scope of the Commission investigation

For the purpose of EU State aid oversight, Member States cannot grant preferential tax treatment to certain corporations, for as by issuing tax rulings. Transactions inside a corporate group, in particular, must be priced to reflect current economic conditions. To put it another way, payments between companies in the same group should be in line with those made under commercial conditions between independent enterprises.

Amazon received a tax ruling from Luxembourg in 2003, which was extended in 2011, as the subject of the European Commission’s State aid probe. This decision endorsed a method for calculating the operating company’s taxable base. For the rights to Amazon intellectual property, it endorsed an indirect technique to compute annual payments from the operating business to the holding company, which was used only by the operating company.

These payments amounted to more than 90% of the operational profits of the running company on average. Compared to the cost-sharing agreement, they were significantly (1.5 times) greater.

It is important to note that no questions were asked about intellectual property ownership or Amazon’s regular payments from the holding company to develop this intellectual property, which were not the subject of the Commission investigation. Luxembourg’s overall tax structure was likewise unaffected by this.

Commission assessment

According to the European Commission’s State aid probe, the Luxembourg tax judgement upheld an inappropriate method for determining Amazon’s taxable profits in Luxembourg. A disproportionate amount of money was paid to the holding company by the operating company in excess of what was reasonable.

For Amazon’s European retail business, the operating firm was solely responsible for making decisions and carrying out actions. As previously stated, the company’s employees picked the products for sale, purchased them from manufacturers, and oversaw the online sale and shipment of products to customers. After adapting Amazon technology and software in Europe, as well as spending money on marketing, the running firm also obtained user data. This means that it was in charge of and responsible for managing and enhancing the company’s intellectual property rights.
As a mere shell, the holding company did nothing more than transfer intellectual property rights to the operational corporation. This intellectual property was not actively managed, developed, or used by the holding firm. In order to justify the royalties it received, it was unable to carry out any work.
The operating company’s taxable profits were cut in half using the tax ruling’s recommended manner. An unjustly high percentage (almost three-quarters) of Amazon’s profits were transferred to the parent company and thereby escaped taxation. Amazon was able to avoid paying taxes on three-quarters of its revenues from EU Amazon sales as a result of the judgement.

It was on the basis of these findings the Commission found Luxembourg to be in support of payments that were not consistent with economic realities. As a result of the tax judgement, Amazon has been able to pay much less tax than other businesses. As a result, the European Commission ruled that Luxembourg’s tax treatment of Amazon under the tax ruling violates EU State aid regulations.

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The infographic is available in high resolution here.



In order to remove the distortion of competition caused by the aid, EU State aid laws demand that incompatible State aid be recovered. No penalties are imposed on the corporation in question as a result of the EU State aid rules or the recovery process. Re-establishing equitable treatment with other businesses is all that is required.

For the purposes of calculating Amazon’s competitive advantage, the Commission has established a methodology that takes into account the difference between Amazon’s tax payments and its tax obligations if it hadn’t received the tax ruling. An estimate based on current data puts the total at roughly €250 million (plus interest). The Luxembourg tax authorities must now use the technique provided in the ruling to ascertain the exact amount of unpaid tax in Luxembourg.


Since June 2013, the European Commission has been conducting an investigation of Member States’ tax ruling practises. In December 2014, it expanded the scope of the investigation to include all of the United States’ members. The European Commission came to the conclusion in October 2015 that Luxembourg and the Netherlands had given Fiat and Starbucks preferential tax treatment. Belgian “excess profit” tax benefits granted to at least 35 corporations, primarily from the EU, were found to be in violation of EU State assistance regulations by the Commission in January 2016. According to the European Commission, Ireland gave Apple tax breaks totaling up to €13 billion in 2016. Furthermore, the European Commission is currently investigating whether McDonald’s and GDF Suez’s tax judgments in Luxembourg constitute state aid (now Engie).

We’ve seen a lot of success recently in our efforts to ensure that everyone pays their fair share of taxes. According to the European Commission’s tax transparency recommendations of March 2015, new rules on automatic exchange of information on tax judgements came into effect beginning in January 2017. Multinational companies’ tax-related financial information will likewise be automatically sent between Member States. There is currently a plan to make some of this information available to the general public. Completed in May 2017, the Anti-Tax Avoidance Directive (ATAD) ensures that anti-abuse provisions are applied throughout the Single Market and are binding and robust.

A renewed Common Consolidated Corporate Tax Base in October 2016 would be a formidable tool in the fight against tax avoidance in the European Union. For tax planning strategies designed and promoted by tax consultants, the Commission proposed new transparency regulations in June 2017. Tax judgements will no longer be used as a tool for tax evasion with the passage of this legislation, which will make the system more transparent. This September, the EU launched a new strategy to ensure that the digital sector is taxed fairly and in a way that encourages economic progress. Prior to the Commission’s 2018 proposal, our Communication laid out the present obstacles Member States face in addressing this critical issue and suggested alternative remedies. Every company, big or little, must pay taxes where they produce their money. This is the premise of the Commission’s work.

Once any difficulties with confidentiality have been resolved, the non-confidential version of the decisions will be made accessible under the case number SA.38944 in the state aid record on the Commission’s Competition website. The State Assistance Weekly e-News keeps track of the most recent online and official journal releases of EU State aid judgements.