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Amazon's Luxembourg tax deal may be illegal, regulators say

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European Commission says tax arrangement may have given Amazon an unfair advantage, in preliminary ruling

European regulators today determined that Amazon's tax arrangement with Luxembourg may have given the company an unfair competitive edge, Reuters reports, raising doubts over the legality of the deal. The announcement comes more than three months after the European Commission opened an investigation into Amazon's tax deal in Luxembourg, where a 2003 ruling has allowed the US retailer to operate nearly tax-free in Europe. The EC, which handles antitrust cases, published the preliminary findings of its investigation today, concluding that the 2003 ruling falls under the category of government aid.

"The Commission's preliminary view is that the tax ruling of 5 November 2003 by Luxembourg in favor of Amazon constitutes state aid... and the Commission has doubts at this stage as to that ruling's compatibility with the internal market," the report reads.

Both sides have denied wrongdoing

European antitrust regulators have opened similar investigations into Apple, Starbucks, and other multinational companies that are accused of exploiting loopholes to save billions in taxes. In September the EC said in a preliminary ruling that Ireland's tax policy for multinationals may constitute illegal state aid, and the Irish government announced plans to close its so-called "double Irish" loophole late last year. The crackdown comes as many cash-strapped European governments are looking to boost their budgets.

In today's preliminary decision, the EC said Amazon's tax arrangement, whereby a Luxembourg subsidiary pays an internal royalty fee on intellectual property to another Amazon subsidiary, doesn't seem to fall within international guidelines. The arrangement reduces Amazon's tax liability in Europe, and "is not related to output, sales, or to profit," the Commission said. It also raised concerns over the fact that the policy was hastily passed and has remained in place for more than 10 years "without any revision."

Both Amazon and the Luxembourg government had previously denied any wrongdoing. "Luxembourg is confident that the allegations of state aid in this case are unsubstantiated and that the Commission investigation will conclude that no special tax treatment or advantage has been awarded to Amazon," the country's finance ministry said in October, after the investigation was opened. At the time, Amazon said it has "received no special tax treatment" from Luxembourg authorities and that it follows "the same tax laws as other companies operating" there.

The Wall Street Journal reports that Amazon and other implicated parties will have several weeks to file a response to today's preliminary decision, before the Commission issues its final ruling.