E.U. Targets Amazon and Apple in Tax Avoidance Campaign

E.U. Targets Amazon and Apple in Tax Avoidance Campaign

The case carries parallels with a similar move by the commission last year, when it directed Ireland to reclaim around $15.2 billion from Apple.

But in a sign of the disquiet in Ireland about that order, which Dublin fears could make it a less attractive place for multinational companies, the Irish government failed to meet a January deadline to collect the money. It has appealed the ruling.

That earned Ireland a forceful rebuke from Ms. Vestager.

“More than one year after the commission adopted this decision, Ireland has still not recovered the money,” she said. “Member states need to make sufficient progress to restore competition. That is why we have today decided to refer Ireland to the E.U. court for failing to implement our decision.”

At the time of the ruling, Europe’s competition watchdogs said that Apple’s arrangements with Dublin were illegal and had allowed the iPhone maker to pay virtually nothing on its European business in some years. Brussels argued that the deals had allowed Apple to funnel profit from two Irish subsidiaries to an office in which it had “no employees, no premises, no real activities.”

Ireland’s department of finance issued an aggressive response, saying it “has never accepted the commission’s analysis” in the Apple case, and was taken aback by Ms. Vestager’s decision to take the country to court. It said it had “made significant progress on this complex issue” and accused European authorities of taking a “wholly unnecessary step.”

Apple did not immediately comment on the move, but has criticized the ruling in the past. The decision has also drawn the ire of the United States Treasury Department.

In the case of Amazon, the commission said that Luxembourg had conferred “an advantage on Amazon,” one which the company “obtained every year” and which was “granted in a selective manner.” That agreement essentially capped the amount of tax that the retailer paid, and relied on a method known as transfer pricing.

Typically, transfer pricing has been used by companies to assign revenues and profits to different business units, but that system is harder to police with technology companies because many of their biggest assets, like intellectual property, are intangible. The European Commission said that Amazon abused this system by sending most of its European revenue to a Luxembourg subsidiary that was not liable to pay corporate tax, helping the company cut its overall tax bill.

Amazon and Luxembourg have denied the charges.

“We believe that Amazon did not receive any special treatment from Luxembourg,” the company said in a statement on Wednesday, adding that it “paid tax in full accordance with both Luxembourg and international tax law.”

Amazon said it would study the commission’s ruling and was considering whether to appeal.

In a statement, Luxembourg’s finance ministry also contested Ms. Vestager’s ruling. “As Amazon has been taxed in accordance with the tax rules applicable at the relevant time, Luxembourg considers that the company has not been granted incompatible state aid,” it said.

It is not illegal in the European Union for member states to attempt to lure businesses by lowering corporate tax rates. But, as with Amazon’s agreement with Luxembourg, offering special deals to individual companies that are not made available to rivals can amount to “illegal state aid.”

The investigations are among several in which commission officials have looked into the affairs of Silicon Valley companies. Regulators in Brussels are challenging Google and Qualcomm over alleged antitrust violations, and officials in various countries have investigated Facebook over its handling of customers’ data.

Ms. Vestager has made tax a priority of her term as Europe’s competition commissioner. In that time, she has penalized Starbucks in the Netherlands and Anheuser-Busch InBev in Belgium. But Luxembourg has been a particular target: In 2015, she told the country to claw back about €30 million from a Fiat Chrysler unit, while a case considering Luxembourg’s treatment of McDonald’s is also continuing.

A broader overhaul may also be afoot. The European Commission last month published proposals aimed at taxing internet companies in the countries where they generate business. Such a shift would mean they could not move profits to jurisdictions with lower taxes.

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