EU to order Luxembourg to collect back taxes from Amazon

European Union officials will order Luxembourg to collect back taxes worth several hundred million euro from online retail giant Amazon, a source with knowledge of the decision said Tuesday, the latest in a series of moves where Brussels has sought to flex its regulatory muscle over Silicon Valley.

The decision, which will be announced Wednesday, comes as European authorities consider a raft of proposals aimed at increasing the amount of tax paid by American technology companies. The regulatory push, combined with the prospect of tax reforms, have fuelled accusations that the European Union is unfairly targeting the US tech sector. EU officials have denied those claims.

Also Tuesday, it emerged that Brussels is close to taking court action against Ireland over its failure to collect more than €13 billion in back taxes from Apple after a record-breaking state aid case in which the Irish authorities were accused of inconsistent tax treatment of global companies.

Margrethe Vestager, EU competition commissioner, issued a record recovery order to Dublin last year in which she said Apple had enjoyed a quarter of a century of illegal aid from the Irish authorities through a tax scheme unavailable to other groups.

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Both Ireland and Apple have appealed against the decision before the European Court of Justice but have angered Brussels because the back taxes have not yet been paid.

In the latest twist in the long-running case, Ms Vestager is considering filing a case asking Europe’s highest court to order Dublin to collect the money. A decision is expected on Wednesday after a weekly meeting of European commissioners.

“The question is whether the action by Dublin is deemed sufficiently advanced, sufficiently real if you like, to give reassurance that they’re getting on with it. It a question of judgment,” said a senior European official.

Ireland was supposed to collect the money from Apple in January but sought an extension from Brussels in light of the scale of the recovery order, the biggest ever handed down by Europe’s competition enforcer. Brussels refused an extension, insisting on prompt payment, and has been “growing impatient”, according to people familiar with the case.

Brussels has gone to the ECJ to force payment before. In 2014 it moved to force France to recover €220 million in state aid from shipping company SNCM. Brussels had ordered Paris to recover the cash within four months of its May 2013 decision. After 10 months of waiting, it went to the Luxembourg court. The court ordered France to recover the money a little over a year later.

Dublin recently tendered for an investment manager to oversee the money due to be repaid by Apple, which will be held in escrow pending the appeal, but Brussels is not happy with the pace of progress.

While Brussels officials recognise that the case is complex, they argue that Dublin has already been given enough time to collect the money, when set against other examples. Fiat repaid tax to Luxembourg in a similar state aid case within four months, and Starbucks took nine months to make a payment to the Netherlands.

Any new legal initiative by the commission would be greeted with disappointment by the Irish authorities, who have insisted for months that Brussels has been fully briefed on the process of securing the money from Apple.

A spokeswoman for Paschal Donohoe, Ireland's finance minister, said Dublin was fully committed to ensuring recovery "without delay" and had committed "significant resources" to this matter.

The commission declined to comment.

A European official said: “There’s clearly a recognition that this is a very complicated case of a nature that’s bigger than normal. The question is whether Ireland has been sufficiently front-footed to get on with this.”

It was not clear in the Luxembourg case how much that country would be ordered to reclaim, according to the source, who did not want to be identified discussing information that was not yet public.

Officials in Luxembourg and the European Commission, the EU's executive arm, declined to comment.

The ruling mirrors the Apple ruling.

The two actions have highlighted the heightened scrutiny faced by low-tax nations in the European Union. Those countries, critics argue, help multinationals funnel revenues from larger markets in order to lower their overall tax bill.

The investigation into Luxembourg's handling of Amazon was made public in 2014, and the commission issued a preliminary finding the following year. In it, it described how the retailer used subsidiaries in Luxembourg to reduce its overall tax obligations. – Copyright New York Times / Financial times Limited 2017