The order stems from Amazon’s business organisation in Europe which funneled most of the company’s European profits through a holding company in Luxembourg that had more favourable tax laws.
Amazon’s practice is not necessarily illegal in the EU. The company used a practice called “transfer pricing” which allows separate units of a single company to charge each other for goods or services. The problem lies in the rate at which the separate units of Amazon were taxed, which was found to be illegal, and led to the favourable tax arrangement Amazon had been operating under since 2003. Amazon moved most of its profits into a business unit that was not taxed as heavily as other areas of the company.
The European Commission has not been shy about taking on the biggest of the US’s tech giants. Google was recently served with a $US2.7 billion fine for its shopping search practices, which were found to be unfairly favouring Google’s own services. Apple, like Amazon, was also ordered to pay back taxes last year, to the tune of $US14.5 billion.
Amazon has said it is considering an appeal. Intel, which was served an anticompetition fine similar to Google, recently won its appeal and its case is to be retried.
Amazon shares are up 27.87% this year.