According to Advocate General Juliane Kokott, “the Commission erred in deciding that Luxembourg had granted unauthorised state aid to Amazon in the form of tax advantages,” according to the press release from the Court of Justice of the European Union (CJEU).
Back in 2017, the Commission deemed the tax ruling granted to Amazon by Luxembourg’s tax authorities as an illicit tax advantage favouring the online retailer.
It ordered Amazon to repay €250 million in taxes plus interest to the Luxembourg State. In this tax ruling, the Grand Duchy’s tax authorities “set out their position regarding the appropriate amount of a royalty between two Luxembourg subsidiaries of the Amazon group. The amount of that royalty has an effect on the corporate income tax liability of Amazon EU Sàrl, established in Luxembourg. The higher the royalty is set, the less corporate income tax is therefore payable in Luxembourg,” the press release states.
Both Luxembourg and Amazon appealed against the decision of the European competition authorities. In 2021, the Court of the European Union initially ruled in favour of Luxembourg and Amazon. However, the European Commission appealed.
In her conclusions, Juliane Kokott argues that the Commission used the wrong criteria for calculating the appropriate royalty amount to determine whether Amazon had paid too little tax.
The Commission relied on OECD criteria instead of basing its calculations on Luxembourg tax law, which did not explicitly reference the OECD rules at that time. Even when applying the OECD rules, “the General Court could not […] find that the determination of transfer pricing was erroneous,” the conclusions state.
It is worth noting that the international tax landscape has since undergone significant changes, with Luxembourg now adhering to OECD standards. Generally, the Court tends to align with the Advocate General’s conclusions in the majority of cases.
