Amazon is facing a bill for 250 million euros (US$294 million) in back taxes.
The European Union's competition commissioner Margrethe Vestager announced the recovery order against the online retailer on Wednesday, October 4.
.@amazon tax benefits in Luxembourg are illegal under our common European rules on state aid. Amazon to repay benefits worth around €250 mio— Margrethe Vestager (@vestager) 4 October 2017
EU Competition Commissioner Margrethe Vestager has taken a tough line on global corporations who are perceived as avoiding their tax liabilities.
"Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed," said Ms. Vestager.
The European Commission found that Luxembourg had allowed Amazon to channel a large portion of its profits to a holding company, without paying tax.
"Our investigation showed that the level of the royalty payments, endorsed by the tax ruling, was inflated and did not reflect economic reality," said the commission in a statement.
EU orders Amazon to repay €250m (£221m) in taxes to Luxembourg after European Commission ruled retailer's tax affairs broke state aid rules— Sky News Newsdesk (@SkyNewsBreak) 4 October 2017
But Amazon, whose European base is in Luxembourg, said it was considering appealing against the demand.
"We believe that Amazon did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law," Amazon said in a statement.
Last year the US Treasury criticized the European Commission's investigations into whether firms like Apple, Amazon and Starbucks were paying their full tax liabilities.
Amazon employs 1,500 people in Luxembourg and is one of the tiny country's biggest employers. Across Europe it employs 50,000, mainly in warehouses and delivery centers, and made a global profit of US$2.4 billion last year.
The company has been blamed for the closure of book shops and many other retailers in Europe, many of whom have cried foul and claimed Amazon does not pay the same taxes as downtown stores.
"This is about competition in Europe, no matter your flag, no matter you ownership," said Ms. Vestager, who denied she was targeting US firms.
Ironically the President of the European Commission, Jean-Claude Juncker, is a former prime minister of Luxembourg and was instrumental in setting up Amazon in the grand duchy.
Spot the Difference
Amazon's bill is only a fraction of the 13 billion euros (US$15.3 billion) Apple, which has a European based in the Republic of Ireland, was ordered to pay last year. But there are similarities between the two deals because both Ireland and Luxembourg have been accused of giving the two companies illegal tax benefits.
Apple employs 6,000 people in the Irish city of Cork and Dublin feared the US company may move away.
Know it may be difficult, but more that 1 year after Apple decision, tax benefits not recovered by Ireland. We ask EU court to look into it.— Margrethe Vestager (@vestager) 4 October 2017
On Wednesday Ms. Vestager threatened to take the Irish government to the European Court of Justice over the money.
"More than one year after the commission adopted this decision, Ireland has still not recovered the money," she said.
Ireland's Department of Finance said the commission's decision was "extremely disappointing."
Ms. Vestager also welcomed comments by French President Emmanuel Macron, said corporate tax regimes should be more consistent across Europe.