EU orders Amazon to repay $295 million in Luxembourg back taxes

BRUSSELS (Reuters) - Amazon (AMZN.O) on Wednesday was told to pay about 250 million euros ($294.38 million) in back taxes to Luxembourg, the latest U.S. tech company to be caught up in a European Union crackdown on unfair tax deals.

The fine was much lower than some sources close to the case had expected and is only a fraction of the 13 billion euros that Apple Inc APPL.O was ordered to pay to Ireland last year.

EU Competition Commissioner Margrethe Vestager, who has other big U.S. tech companies in her sights, has taken a tough line on multinational companies’ approach to tax.

“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed,” Vestager said.

Amazon said it was considering an appeal.

“We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law,” Amazon said in a statement after the announcement.

Though the EU has taken on several U.S. tech companies, both in antitrust and in tax avoidance cases, Vestager said that her approach was not biased against foreign companies

“This is about competition in Europe, no matter your flag, no matter you ownership,” Vestager said.

She also welcomed the debate kicked off by French President Emmanuel Macron who called for more integrated corporate tax regimes in Europe, aiming to close the loopholes used to reduce tax bills.

The Commission said the exact amount of tax to be reclaimed from Amazon would still need to be calculated by Luxembourg authorities.

The 250 million euros is significantly less than the 400 million euros which sources close to the matter told Reuters a year ago was under consideration by Vestager.

The Commission said Luxembourg allowed Amazon to channel a significant portion of its profits to a holding company without paying tax. The holding company was allowed to do this because it held certain intellectual property rights.

“The Commission’s investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality,” the Commission said in a statement.

Amazon, which employs 1,500 in the grand duchy, is one of the biggest employers in the country of half a million people. The U.S. company, which has a Europe-wide staff of some 50,000, in 2016 made a $2.4 billion profit on global revenues of $136 billion.

Amazon’s corporate set up with subsidies in Luxembourg construction was also subject of a $1.5 billion court case with U.S. tax authorities, which Amazon won in March.

Luxembourg, whose tiny economy has benefited from providing a European base for multinational companies, rejected the finding and said it was looking at its legal options.

European Commission President Jean-Claude Juncker was prime minister of Luxembourg for almost two decades until 2013 and has been criticized for his role in enabling the many tax deals which are now being unraveled. He denies doing anything wrong and says the Commission is committed to ensuring fair taxation.

In 2014, Luxembourg made international headlines in the wake of the publication of “LuxLeaks”, documents which showed how large accounting firms helped multinational companies channel proceeds through the country while paying little or no tax.

Luxembourg is also under EU scrutiny over tax deals with fast food chain McDonald’s (MCD.N) and French energy company Engie (ENGIE.PA). Luxembourg has appealed against a ruling in 2015 that carmaker Fiat (FCHA.MI) should pay it back taxes. As well as Ireland, tax for multinationals in Belgium and the Netherlands have also come under Commission scrutiny.

Vestager also said on Wednesday that she was taking the Irish government to court for failing to recoup the taxes from Apple which she had ordered over a year ago. [L8N1MF25V]

Amazon revamped its European tax practices in 2015 so that it can book sales and pay taxes in Britain, Germany, Spain and Italy instead of channeling all sales through Luxembourg where it is headquartered, a move which may raise its tax bill.

($1 = 0.8493 euros)