(CN) - Retail giant Amazon and the tiny kingdom of Luxembourg are the latest targets of EU's regulatory chiefs, one week after they cracked down on Apple's income-tax deal in Ireland.
Coming on the heels of last week's announcement that the last few decades of Ireland's tax deals with Apple may constitute illegal state aid, the European Commission said Tuesday that it is investigating similar allegations involving Amazon and Luxembourg dating back to 2003.
For one thing, the tax agreements - called "comfort letters" in the EU - are only supposed to last between three and five years, not a decade as in this case or 23 years with Apple and Ireland, according to regulators.
Under its deal with Luxembourg, Amazon's European subsidiary records most of the company's profits in the EU while being headquartered in Luxembourg. The subsidiary then pays a tax-deductible royalty to a limited liability partnership - lowering its taxable profits - but the LLP doesn't pay corporate taxes to the Luxembourgish government.
The net effect of the deal is that, while most of Amazon's European profits are recorded in Luxembourg practically none of it is taxed, the commission said. And Joaquin Almunia, the outgoing commissioner in charge of competition policy, is not amused.
"National authorities must not allow selected companies to understate their taxable profits by using favorable calculation methods," Almunia said in a statement. "It is only fair that subsidiaries of multinational companies pay their share of taxes and do not receive preferential treatment which could amount to hidden subsidies. This investigation concerning tax arrangements for Amazon in Luxembourg adds to our other in-depth investigations launched in June. I welcome that cooperation with Luxembourg has improved significantly."
The commission said Luxembourgish authorities have been less-than forthcoming with information, which led to the start of infringement proceedings against the 998-square-mile nation earlier this year. Information began coming from tax authorities in dribs and drabs in August, regulators said.
Besides Amazon, the commission is also investigating Luxembourg's tax agreements with Fiat. And earlier this year the regulatory body launched similar investigations into Starbucks' deal with the Netherlands.
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