Amazon.com was hit by a European Union order to pay €250 million plus interest in back taxes to Luxembourg as the world’s biggest online retailer became the latest US giant to fall foul of the bloc’s state-aid rules.
The European Commission also said it’s suing Ireland for foot-dragging in its efforts to recover “even part” of last year’s record €13 billion-bill from Apple. The Irish finance ministry attacked the EU’s decision to go to court as “wholly unnecessary.”
“Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules” and “this is illegal under EU State aid rules,” EU Competition Commissioner Margrethe Vestager said in an emailed statement. These were “illegal tax benefits” as a result of which “almost three-quarters of Amazon’s profits were not taxed.”
The Amazon decision adds to a growing list of scalps for Ms Vestager in her crackdown on tax loopholes. It follows the Apple decision last year, which reverberated across the Atlantic with the EU accusing Ireland of granting unfair deals that reduced the company’s effective corporate tax rate.
At stake in all these decisions are billions of euros that multinational companies have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their sales.
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In the Amazon case, the EU concluded that the level of the royalty payments, endorsed by the tax ruling, was inflated and “did not reflect economic reality.” The structure at issue in the EU probe was in place from May 2006 to June 2014, the commission said. The company then changed to a new structure that is outside the scope of the commission’s state aid investigation.
Fresh from levying record antitrust fines on Google, Ms Vestager has insisted she’s not singling out American companies, pointing to European firms that have been penalized. But moving against Amazon and McDonald’s also risks further stoking tensions with the US, which is still sore over the Apple ruling.
As the EU seeks to fix loopholes it says allowed the likes of Amazon and Apple to pay less than their fair share, US president Donald Trump is weighing plans to rein in revenue lost when companies shift profits to tax havens. The proposals would allow US companies to bring back, or repatriate, years’ worth of foreign earnings after paying a low tax rate.
Amazon, which said it will have 65,000 employees in Europe by the end of this year, of which about 1,500 in its European base in Luxembourg, denied receiving special treatment.
“We paid tax in full accordance with both Luxembourg and international tax law,” Amazon said in an emailed statement. “We will study the commission’s ruling and consider our legal options, including an appeal.”
Luxembourg, which has gained a reputation for doling out special deals to big firms in the Grand-Duchy, denied Amazon had been given unfair treatment.
Luxembourg’s finance ministry said it “will use appropriate due diligence to analyze the decision and reserves all its rights” but that it has been “fully cooperating with the commission” during the probe.
The decision “refers to a period going back to 2006,” Luxembourg said. “Over time, both the international and the Luxembourg legal frameworks have substantially evolved. As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible state aid.”
The EU is also poised to rule on McDonald’s tax affairs in Luxembourg in the coming weeks, according to three people familiar with the cases who spoke on condition of anonymity. Competition watchdogs are also weighing a more general crackdown on special tax deals that EU countries offer big corporations.
The EU commission “is maybe reaching the end of the beginning of the process, but certainly not the beginning of the end,” Gert-Jan Koopman, the authority’s deputy director-general for state aid, said Sept. 26 at a conference in Brussels. He called the crackdown a “long-term, crucial priority.”
Starbucks and a Fiat Chrysler Automobiles unit were the first companies targeted by the EU, in 2015 ordered to repay as much as €30m each to the Netherlands and Luxembourg respectively. The following year, 35 companies including Anheuser-Busch InBev had to pay as much €700m in total back to Belgium.
Appeals have been piling up at the EU courts, and lawyers are waiting on rulings to establish legal precedents on the use of state-aid law.
In the Apple case, part of the delay may stem from negotiations over the terms of the escrow account, as Ireland sought an indemnity to make sure it isn’t liable for any drop in the value of the fund while the case winds its way through the EU courts. In the end, it was agreed that Ireland and Apple will jointly choose investment managers, a decision which could sidestep the need for a formal indemnity.
Once it’s collected, Irish authorities were planning to place the money in an escrow account pending an appeal. If the appeal, which could take as long as five years, is successful, the money will be returned to Apple. The government is seeking managers to invest the money while the appeal is going on.
"I hope that both decisions are seen as a message that companies must pay their fair share of taxes as the huge majority of companies do,” Ms Vestager said during a press conference in Brussels on Wednesday.
The Irish finance ministry hit back, saying the country has made “significant progress on this complex issue and is close to the establishment of an escrow fund, in compliance with all relevant Irish constitutional and European Union law.”
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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Siyovush Gulmamadov v Nouredine Samir
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The Kingfisher Secret
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
