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Advocate General Issues Opinion In Amazon Luxembourg State Aid Case

Friday 9th June 2023

Advocate General Kokott has issued her opinion on the European Commission’s decision of October 2017 as to whether Luxembourg had granted state aid to Amazon by way of certain tax rulings.

Following an investigation launched in October 2014, the EC concluded in 2017 that Luxembourg had granted undue tax benefits of around €250m to Amazon and held this to be illegal state aid.  In particular, the Luxembourg tax rulings endorsed an unjustified method to calculate Amazon’s taxable profits in Luxembourg, with the level of the royalty payment from the operating company to the holding company being inflated and did not reflect economic reality.

After the EC decision, Luxembourg stated that as Amazon had been taxed in accordance with the tax rules applicable at the relevant time, it considered that the company had not been granted incompatible state aid. Amazon responded to the decision by stating that it did not believe that it received any special treatment from Luxembourg and that tax was paid fully in accordance with both Luxembourg and international tax law.

Both Amazon and Luxembourg appealed to the General Court of the EU which found no selective advantage in favour of Amazon and annulled the decision of the EC by its judgment of May 2021.

The General Court could not, on the basis of the OECD Guidelines, find that the determination of transfer pricing was erroneous. The EC had not demonstrated that the tax burden had been artificially reduced as a result of over-pricing the royalty. Whether the arm’s length principles of the OECD could actually be the correct reference system for a review of State aid was not the subject of dispute before the General Court.

The EC brought an appeal before the Court of Justice against that judgment of the General Court.

In her opinion of 8 June 2023, AG Kokott proposes that the EC’s appeal be dismissed and the General Court’s judgment, which annulled the EC’s decision, be upheld.

In the AG’s view, the EC had based its review of the appropriate amount of the royalty exclusively on the OECD Transfer Pricing Guidelines, although Luxembourg law at the time when the tax ruling was issued did not refer to those guidelines. The EC therefore incorrectly failed to take the Luxembourg national law as the relevant reference system for its review of a selective advantage. On the basis of that error, all the subsequent considerations in the EC decision are vitiated by an error of law. The General Court was therefore correct in annulling the EC decision at issue albeit on different grounds in the absence of a demonstrated selective advantage.

The Court of Justice is not required to rule on whether those other grounds, which the EC expressly challenges in its appeal, are tenable. Even if the Court of Justice were to consider itself bound by the choice of the incorrect reference system, the EC’s argument would be unfounded. In the view of the AG, the method selected in the Luxembourg tax ruling also when the OECD Transfer Pricing Guidelines were applied to it would not have been manifestly the incorrect method, nor was it manifestly misapplied.

Given the fiscal autonomy of Member States, however, only tax rulings which are manifestly erroneous in favour of the taxpayer could however constitute a selective advantage. For that reason, the EC was also unable to demonstrate in its decision that the tax ruling had conferred a selective advantage on Amazon.

The AG’s opinion is not binding on the Court of Justice as it is the role of the AG to propose to the Court, in complete independence, a legal solution to the cases for which they are responsible. The Judges of the Court will now begin their deliberations in this case with judgment to be given at a later date

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