Amazon has been ordered by the European Commission (EC) to pay around 250 million Euros (US$294 million) to Luxembourg in back taxes, according to Reuters. The decision by the EU follows three years of investigation regarding a special tax deal, which took place in 2006.

European Commission (EC)
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Margrethe Vestager, EU Competition Commissioner, 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.”

The European Commission (EC), in its investigation, found that Amazon was able to transfer a major share of profit from an Amazon Group company (Amazon EU), which is supposed to be governed by national tax laws in Luxembourg, to a company named as Amazon Europe Holding Technologies, which is not governed by the same laws as the former. Since, Amazon Europe Holding paid a royalty to Amazon EU, the tax liability came down significantly.

Amazon, in a statement, said, they have not received any special treatment by Luxembourg and that the taxes were paid as per the rules of Luxembourg and the International tax law. The company, further, said that they would explore legal options after reading the European Commission ruling.

“Our 50,000 employees across Europe remain heads-down focused on serving our customers and the hundreds of thousands of small businesses who work with us,” the U.S. firm said.

Luxembourg has also responded to the ruling, saying they have taken note of the ruling, and will “use appropriate due diligence to analyze the decision.” Further, Luxembourg said the case dates back to 2006, and since then, the legal framework has evolved to a great extent, notes CNBC.

The European Commission’s recent rulings are a part of the wider campaign underway to revise the norms of collecting the tax in the 28 nation-bloc. European Union authorities have been actively identifying the U.S. technology companies who escape their tax liability one way or another.

The European Commission (EC) believes that companies like Facebook, Google and Amazon, who basically offer web services, pay too little and route most of the profits through low rate countries such as Ireland and Luxembourg. A recent report by the Commission stated that the tech companies pay less than half the tax compared to the brick and mortar businesses. The report read that digital businesses with international operations pay somewhere around 10.1% tax compared to the 23.2% rate paid by traditional companies, notes The Guardian.

In addition, Apple and the Commission are already in a legal battle over 13 billion Euros in back taxes. Further, the Commission is also investigating the tax arrangement between McDonald’s and Luxembourg. Though there have been allegations that the European Union unfairly picks the U.S. tech companies, bloc officials never gave credit to these allegations.

The United States, on the other hand, is not particularly happy about the situation. Recently, the American Head of Chamber of Commerce to the EU (AmCham EU), Susan Danger said, “Unilateral action by the EU would seriously undermine international efforts to address tax issues.”