The Commission Sued Ireland in the EU Court, Expects Return of 13 Billion Euros in Illegal Subsidies to Apple

The European Commission filed a lawsuit against Ireland in the EU Court on Wednesday for failing to ensure the return of 13 billion euros from Apple, which represents the illegal tax benefits that the company received in that country, and ordered Luxembourg to seek the return of approximately 250 million euros from Amazon, also due to unjustified tax benefits.

The Commission concluded in its decision of August 30, 2016, that the tax benefits provided by Ireland to Apple were not in accordance with state aid rules, as this American company was allowed to pay significantly lower taxes than other companies. According to state aid rules, all illegal subsidies must be repaid to correct distortions in market competition.

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– Ireland must ensure the return of 13 billion euros in illegal subsidies to Apple, and after more than a year since the Commission’s decision, this has not yet been implemented. We understand that the return of funds may be more complex than in other cases. The Commission is always ready to assist in this, but member states must make sufficient progress in correcting distortions in market competition. For this reason, the Commission decided today to sue Ireland in the EU Court for failing to implement its decision, said Competition Commissioner Margrethe Vestager.

Tax Benefits to Amazon

After nearly three years since the opening of the investigation, the Commission concluded that Luxembourg provided illegal tax benefits to Amazon worth approximately 250 million euros and requested the local tax authorities to ensure the return of those funds.

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– Luxembourg provided illegal tax benefits to Amazon. As a result, nearly three-quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is contrary to state aid rules. Member states cannot provide selective tax relief to multinational groups that are not available to other companies, said Commissioner Vestager.

By the decision of the Luxembourg tax authorities, Amazon was allowed to redirect the vast majority of profits from the Amazon group companies that are subject to taxation in Luxembourg (Amazon EU) to a company that is not subject to taxation in that country (Amazon Europe Holding Technologies). This tax decision allowed the company Amazon EU to pay royalties to the company Amazon Europe Holding Technologies, significantly reducing the taxable profit of Amazon EU.

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The Commission’s decision relates to the tax treatment of two companies from the Amazon group in Luxembourg – Amazon EU and Amazon Europe Holding Technologies. Both companies are registered in Luxembourg and are wholly owned by the Amazon group and under the ultimate control of the parent company in the USA, Amazon.com, Inc.

Amazon EU (“operating company”) manages Amazon’s retail operations in Europe. This company had more than 500 employees in 2014 who selected goods for sale on Amazon’s websites in Europe, purchased those goods from manufacturers, and managed online sales and delivery of products to customers. Amazon has contractually arranged its sales operations in Europe so that customers purchasing products on any of Amazon’s websites in Europe are buying products from the operating company in Luxembourg. In this way, Amazon registered all sales in Europe and the profits from those sales in Luxembourg.

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Amazon Europe Holding Technologies (“holding company”) is a limited partnership without employees, offices, and business activities. The holding company acts as an intermediary between the operating company and Amazon in the USA. It holds certain intellectual property rights for Europe based on a “cost-sharing agreement” with Amazon in the USA.

The holding company was an empty shell that simply transferred intellectual property rights to the operating company for its exclusive use, and nearly one-third of Amazon’s profits were unjustly attributed to the holding company, which remained untaxed.

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Under Luxembourg’s general tax law, the operating company is subject to corporate taxation, but the holding company is not due to its legal form, which is a limited partnership. The profits of the holding company are taxed only at the partner level, not at the level of the holding company itself. The partners of the holding company are located in the USA and have so far deferred payment of their tax obligations.

The Commission states that transactions among companies that are related in a group must be charged in a way that reflects economic reality. This means that payments between two companies in the same group should be in accordance with arrangements that apply in commercial terms between independent companies.