The European Commission has ordered online retailer Amazon to pay back around 250 million euros in taxes to Luxembourg. Fieldfisher competition and trade lawyer John Cassels, gives his viewpoint:
"This decision has been made on the basis that Amazon received unlawful state aid by way of tax breaks, contrary to EU law, over the period from 2003 – 2014.
"Over the period, Luxembourg gave letters to Amazon providing comfort on how its corporate tax will be calculated and in particular to confirm its transfer pricing arrangements, i.e. the prices for goods sold or services provided by one subsidiary of a corporate group to another subsidiary of the same group. This influences the allocation of the group's taxable profit between its subsidiaries located in different countries. As such, tax rulings are not necessarily problematic but in this case the EU has found against it.
"Failure to comply with the order will mean that the Duchy of Luxembourg will be taken to the EU Courts. This happens regularly with Italy, Spain, Greece and others all having recently been taken to the Courts.
"It is a racing certainty, however, that Luxembourg will appeal the Amazon decision of the EU Commission. It is already appealing a similar decision in connection with Fiat being granted allegedly unlawful state aid via its tax position in Luxembourg. In fact, all of the Member States that have been found by the EU Commission to have breached the state aid rules via tax arrangements (e.g. The Netherlands for Starbucks, Ireland for Apple) are appealing against the Commission's findings and orders for recovery.
"These cases expose the tensions within the EU between allowing Member States to organise their own tax affairs and the reality of competition between Member States to attract jobs and investment.
"At the moment, general corporate tax rates are set by individual Member States of the EU. There are moves afoot to harmonize those or at least introduce equalization measures. Post Brexit, the UK would not be bound by such harmonization measures but it seems unlikely that the EU would allow the UK to compete "unfairly" via a low corporate tax rate without retaliating in some way."