The European Commission has ruled that global online retailer Amazon must repay €250 million in illegal state aid that was granted to it by Luxembourg as tax benefits. The Commission stated that under a rule adopted by Luxembourg Amazon paid substantially less tax than other businesses.

The Commission launched its investigation in October 2014 which has found that a tax ruling issued by Luxembourg in 2003, and extended in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification.

Luxembourg's tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that was subject to tax in Luxembourg (Amazon EU) to a company which was not subject to tax (Amazon Europe Holding Technologies), according to the Commission.

In particular, the Commission found that the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which it said significantly reduced Amazon EU's taxable profits.

The Commission's investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality. On this basis, the Commission concluded that the tax ruling granted a selective economic advantage to Amazon by allowing the group to pay less tax than other companies subject to the same national tax rules. In fact, the Commission said, the ruling enabled Amazon to avoid taxation on three quarters of the profits it made from all Amazon sales in the EU.

Commissioner Margrethe Vestager, in charge of competition policy, said: "Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules. This is illegal under EU State aid rules. Member states cannot give selective tax benefits to multinational groups that are not available to others."

Meanwhile, the European Commission has referred the Irish government to the European Court of Justice for failing to recover €13 billion from technology company Apple. The Commission ruled last year that Apple had been the recipient of illegal state aid due to its preferential tax treatment in Ireland. The deadline to implement the Commission's decision on Apple's tax treatment was 3 January 2017 but the Irish government is still in the process of calculating the exact level of illegal state and aid which the Commission said it did not intend to conclude until March 2018.