Amazon was ordered to pay 250 million euros ($294 million) to Luxembourg on Wednesday after the European Commission said the online retailer had received illegal tax benefits.
According to regulators, Amazon received tax advantages between 2006 and 2014 in the country without any "valid justification."
"Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon's profits were not taxed," Margrethe Vestager, the EU's commissioner for competition, said in a statement.
"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," she added.
From June 2014, Amazon changed the way it operates in Europe and the new structure is outside the EU Commission's authority on state aid.
In the period investigated, Amazon was shifting its profits from a company that was subject to tax in Luxembourg to another one that wasn't subject to tax, known as the "holding company." The latter had no employees, no offices and no business activities.
Luxembourg is due to receive the amount created by the aid, though there are no fines under EU law. Luxembourg authorities said they have taken notice of the decision and will "use appropriate due diligence to analyze the decision."