Why Amazon Is the Latest U.S. Giant in EU Tax Trouble

The European Union has ordered Amazon.com Inc. to pay 250 million euros ($294 million) in back taxes to Luxembourg, part of a renewed push to crack down on tax loopholes. At stake are billions of euros that multinational companies, most of them American, have squirreled away in tax havens, out of the reach of authorities in the countries where they make most of their profits. The EU says that the sweetheart deals are tantamount to illegal subsidies and make it hard for rivals who pay their fair share of tax to compete. The Amazon case mirrors one brought against Apple Inc. It was ordered last year to repay as much as 13 billion euros to Ireland -- which didn’t really want to collect them.

The EU’s competition officials have been on a crusade since 2013 to unearth unfair practices by countries that give some firms a selective advantage in order to attract their business and the jobs attached. The goal is to find questionable deals among the thousands of otherwise legal pacts governments have arranged for companies for years. In the Amazon case, the EU criticized Luxembourg for approving a “cosmetic” deal with the internet retailer that let it shift billions of euros to a tax-free unit. That enabled a taxable Amazon unit in Luxembourg to collect profits from France, Germany and Britain and then pay exaggerated amounts of deductible royalties to another unit that licenses the group’s intellectual property rights. The EU said Amazon avoided taxes on 75 percent of the profit from its European sales.