EU to probe Amazon over Luxembourg tax deal

European regulators are scrutinising tax deals between Luxembourg and Amazon which may amount to "illegal state aid," reports suggest.

According to the Financial Times, the EU's Competition Commission is on the verge of launching an intense probe into the country's tax arrangements with the online retail giant. The publication says that a 2003 arrangement may have led to potentially illegal subsidies for operations conducted in Europe over almost a decade.

While tax rulings and arrangements are not illegal in Europe, such so-called "sweetheart" deals have come under scrutiny in the past several years. If a company chooses to officially reside in particular countries -- using parent, umbrella and registered addresses no matter where business is undertaken -- they can be enticed by tax breaks or loopholes which, while not illegal, can result in low duties and sales tax.

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However, these deals can also lead to "promises of indirect subsidies" by governments seeking to add companies to their residence portfolio, according to the publication. In addition, this can also result in countries which are arguably entitled to a tax slice are passed over for lower tax areas.

Amazon's 2003 arrangement focuses on a deal which capped the tech giant's tax exposure to the Grand Duchy. According to people familiar with the matter, this special arrangement limited the firm's overall bill to less than one percent of Amazon's European revenue.

The retail giant is not the only company facing tax-based investigations by EU regulators -- as Apple in Ireland, Starbucks in the Netherlands and Fiat Finance and Trade in Luxembourg have also come under fire in recent times. It is alleged that Apple and the Irish government struck a deal which gives the iPad and iPhone maker a lower corporate tax rate of around two percent in the country, while the standard rate is over 12 percent. In return, Apple is to guarantee jobs in Ireland.

Last week, Ireland's Department of Finance said in response to allegations concerning Apple:

"Ireland is confident that there is no breach of state aid rules in this case and has already issued a formal response to the Commission earlier this month, addressing in detail the concerns and some misunderstandings contained in the opening decision."

While the European Commission has no power to dictate tax policies in separate countries, the entity does hold the power to investigate matters deemed anti-competitive. If illegal subsidies are discovered -- which distort competition across the European region -- Brussels holds the power to order Luxembourg to recoup missing tax payments.