The European Commission has revealed its reasons for accusing Luxembourg of giving Amazon an unfair advantage and illegal state-aid through special tax arrangements.
Details of Amazon's favourable tax arrangements in Luxembourg were published today in a letter sent by the EU to the country's officials in October, announcing the EC's intent to launch an investigation.
According to the letter, the tax arrangements Amazon has had in place since 2003 in the country are based on transfer pricing methods that don't comply with OECD standards for 'arm's length' principles.
"The Commission is of the opinion that through the contested tax ruling the Luxembourgish authorities confer an advantage on Amazon. That advantage is obtained every year and on-going, when the annual tax liability is agreed upon by the tax authorities in view of that ruling," former EC competition commissioner Joaquín Almunia wrote in the letter.
In addition, the EC's preliminary view is that Amazon's tax deal in the country was "selective" and may have amounted to illegal state aid.
"In light of the foregoing considerations, the Commission's preliminary view is that the tax ruling of 5 November 2003 by Luxembourg in favour of Amazon constitutes state aid within the meaning of Article 107(1) TFEU and the Commission has doubts at this stage as to that ruling's compatibility with the internal market," the letter reads.
Apple faced similar accusations in relation to its Irish operations and has warned investors that it may be forced to pay back taxes for years the EU finds its tax arrangements constituted illegal state aid.
As noted by Bloomberg, Amazon's transfer pricing report - typically highly complex documents that form the basis of a tax ruling - was approved within 11 days and amounted to little more than a "cosmetic arrangement".
"[This] is a very short period of time had a transfer pricing report been submitted and assessed in this case," Almunia noted.
Amazon denies it's received favourable treatment by Luxembourg.
"Amazon has received no special tax treatment from Luxembourg - we are subject to the same tax laws as other companies operating here," an Amazon spokesman told ZDNet.
Luxembourg's ministry of finance said in a statement today it was "confident that the allegations of State aid in this case are unsubstantiated and that it will be able to convince the Commission in due time of the legitimacy of the tax ruling and that no selective advantage has been granted."
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