The European Union's executive commission is launching a formal investigation into Amazon's tax relationship with Luxembourg. Brussels alleges that Luxembourg offered Amazon a preferential tax rate. Both Amazon and Luxembourg, however, have denied that Amazon is receiving special treatment.
The investigation, which the EU opened Tuesday, will decide whether Amazon is "paying its dues on profits made across the 28-nation bloc," The Associated Press reports. The EU is already investigating Apple and Starbucks for similar tax concerns in other countries.
AP notes that the EU has launched the investigations as part of its "crackdown on multinationals' tax avoidance schemes." The EU wants to stop companies from avoiding taxes by moving profits to subsidiaries in countries where they can enjoy low taxes.
Amazon lowers its taxable profits by "making royalty payments to another Luxembourg-based Amazon entity that is not subject to corporate taxation," which lowers its effective tax rate in Luxembourg. The EU is investigating the legality of a 2003 tax deal between Amazon and Luxembourg's government. If the commission rules against Amazon, it may be forced to repay taxes for its European operations.
"Most European profits of Amazon are recorded in Luxembourg but are not taxed in Luxembourg," the EU Commission said in a statement. AP reports that 40 percent of Amazon's revenue comes from outside the U.S., but Amazon did not specify how much of the 40 percent is from European countries.