The European Commission (EC) has concluded that Luxembourg granted undue tax benefits to Amazon of around €250 million, an illegal action under EU State aid rules because it allowed Amazon to pay substantially less tax than other businesses.

Luxembourg must now recover the illegal aid, the EC said.

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."

Following an investigation launched in October 2014, the Commission has concluded that a tax ruling issued by Luxembourg in 2003, and prolonged in 2011, lowered the tax paid by Amazon in Luxembourg without any valid justification.

The tax ruling enabled Amazon to shift the vast majority of its profits from an Amazon group company that is subject to tax in Luxembourg (Amazon EU) to a company which is not subject to tax (Amazon Europe Holding Technologies). In particular, the tax ruling endorsed the payment of a royalty from Amazon EU to Amazon Europe Holding Technologies, which 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.

Amazon said in a statement it believed it "did not receive any special treatment from Luxembourg and that we paid tax in full accordance with both Luxembourg and international tax law." It said it would consider appealing.

Luxembourg said it might appeal Wednesday's ruling, but stressed it is "strongly committed to tax transparency and the fight against harmful tax avoidance."

The EU has taken aim at such past deals, which EU states had used to lure foreign companies in search of a place to establish their EU headquarters. The practice led to EU states competing with each other and multinationals playing them off one another.

According to the EU, transactions between companies in a corporate group must be priced in a way that reflects economic reality. This means that the payments between two companies in the same group should be in line with arrangements that take place under commercial conditions between independent businesses.

European regulators are poised to issue a similar recovery order against McDonald's in the coming weeks. Large American companies may be the easiest targets, since U.S. tax law encourages them to book profit overseas and leave it there. Lots of American corporations move their IP assets overseas to cut taxes. From there, they effectively rent out the core innovations to their own overseas operating units. The biggest of these companies shift billions of dollars to the tax havens through royalty payments, thereby lowering the parent's tax bill.

In a seperate case, the European Commission said on Wednesday it was taking Ireland to the European Court of Justice for its failure to recover up to 13 billion euros ($15.3 billion) of tax due from Apple.

The Commission ordered the U.S. tech giant in August 2016 to pay the unpaid taxes as it ruled the firm had received illegal state aid, one of a number of deals the EU has targeted between multinationals and usually smaller EU states.

"More than one year after the Commission adopted this decision, Ireland has still not recovered the money," Margrethe Vestager said, adding that Dublin had not even sought a portion of the sum.

The Commission said the deadline for Ireland to implement its decision had been Jan. 3 this year and that, until the aid was recovered, the company continued to benefit from an illegal advantage. Apple is appealing the case.

Ireland's finance ministry said it had never accepted the Commission's analysis in the Apple state aid decision, but was committed to collecting the money due pending Dublin's own appeal of the ruling.

"It is extremely regrettable that the Commission has taken this action, especially in relation to a case with such a large scale recovery amount," the ministry said in a statement.