Amazon, the EU Court confirms the tax victory against Brussels

Victory confirmed for Amazon in the fiscal tug-of-war with the EU regarding the taxes agreed – obviously with a favorable negotiation – with Luxembourg.

It is the EU Court itself that summarizes the story, which dates back to tax ruling (that practice whereby large companies and tax authorities agree in advance on the level of levy) dated 2003. With this agreement the Luxembourg authorities accepted the Amazon group’s proposal relating to the treatment of two of its subsidiary companies established in Luxembourg corporate tax purposes.

A tax agreement which for the Commission, and we have reached 2017, represented illegitimate state aid contrary to European rules. For the executive of Brusselswith a royalty payment mechanism between the two subsidiaries, the e-commerce and server giant would have “artificially decreased the tax base of the first subsidiary company and, ultimately, that of the Amazon group in Luxembourg and Europe”.

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Decision contested by Luxembourg itself, as well as by Amazon, at the Union Court. Which had effectively concluded, in 2021, that the Commission had not sufficiently demonstrated the tax benefit and that Luxembourg had not granted selective advantages to Amazon, canceling the Commission’s request.

After the appeal by Brussels of this decision of the Court we arrive at today’s decision of the Court of Justice: which rejects the appeal brought by the Commission against the ruling of the Court. And therefore he essentially agrees with Amazon and Luxembourg.

In reality the Court lines up some errors committed by the Court in developing his judgement. It “erroneously recognized the general applicability of the arm’s length principle, which is aimed at assessing whether intragroup transactions take place in compliance with market conditions, in the context of the implementation of the Union’s state aid rules. Indeed, since this principle does not have an autonomous existence in Union law, the Commission can only invoke it when it is incorporated into the national tax law concerned, in this case Luxembourg tax law”. And then, “contrary to what was stated by the Court, the guidelines of the Organization for Economic Co-operation and Development (OECD) relating to the transactions in question could only be of importance in the present case if Luxembourg tax law had explicitly referred to them. The Court deduced that the Commission had erroneously determined the “reference system”, the first phase of analysis of a national measure in order to be able to qualify it as State aid”.

In essence, the Court made errors and reached erroneous conclusions “according to which, at the time of the adoption of the tax ruling in question, the reference system determined by Luxembourg tax law sanctioned the principle of free competition”. But the Court nevertheless confirms its ruling, “since the Commission’s decision should, in any case, have been annulled due to this incorrect determination of the reference system rather than for the reasons set out by the Court. The Court, in fact, had annulled the Commission’s decision due to errors committed in the application of the aforementioned reference system, thus starting from the incorrect hypothesis that it was compliant with the treaty”.