Amazon has been hit with a €250 million fine in back taxes by the EU

  • The European Commission has hit Amazon with a €250 million fine in back taxes.
Jeff bezos amazon ceoDrew Angerer/Getty ImagesJeff Bezos, chief executive officer of Amazon, listens during a meeting of technology executives and President-elect Donald Trump at Trump Tower, December 14, 2016 in New York City.

Amazon has been hit with a €250 million fine in back taxes, after a European Commission investigation found the company had an illegal “sweetheart” tax deal in Luxembourg.

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The Commission found Luxembourg had breached its rules on state aid by allowing Amazon’s tax-minimising setup since 2003. The heart of the problem is “transfer pricing,” where one Amazon subsidiary will charge another subsidiary for goods or services.

The knock-on effect is that Amazon’s taxable profits will sit in the country with the lowest corporate tax rate. It is legal under EU law, as long the prices being charged by the group companies stack up with the market price.

The investigation involved an Amazon subsidiary in Luxembourg, Amazon EU SARL, which accounts for the bulk of the company’s European profits, but pays royalties to another Amazon subsidiary not subject to corporate tax.

The EU has relentlessly pursued Silicon Valley firms in the last year

The ruling is yet another indicator that the Commission is prepared to crack down on powerful Silicon Valley companies.

In August 2016, Apple was ordered to pay the EU an eye-watering€13 billion(£11.1 billion; $US14.5 billion) in back taxes, just like Amazon.

Competition commssioner Margrethe Vestager this year also fined Google a record-breaking €2.4 billion (£2.1 billion, $US2.7 billion) for promoting its own shopping service over rivals’.

“We are doing this because people are angry,” Vestager said.

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