Tax News Alert

Advocate General challenges European Commission's assessment of Luxembourg's tax ruling in the Amazon case

Jean-Nicolas Bourtembourg,
Mélina Rondeux
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Advocate General Juliane Kokott (the “AG”) challenged the European Commission’s (the “Commission”) claim that Luxembourg provided unauthorized state aid to Amazon through tax advantages. In her Opinion on Amazon case (C-457/21), the AG highlights the critical flaws in the Commission’s approach, as well as supports the annulment of the Commission’s decision by the General Court. Nevertheless, the final judgment rests with the Court of Justice of the European Union (“CJEU”).


The AG considers that the Commission made an error by determining that Luxembourg had granted unauthorized state aid to Amazon in the form of tax advantages. The Commission's reliance on the OECD Transfer Pricing Guidelines (the “OECD TP Guidelines”) as the reference system in order to assess a selective advantage, instead of Luxembourg law, was deemed incorrect. The General Court had previously annulled the Commission's decision, and now the CJEU is considering the appeal.


1. The contexted tax ruling

In 2003, the Luxembourg tax authorities granted a tax ruling involving the determination of a royalty amount between two Luxembourg subsidiaries of Amazon. This determination directly impacts the corporate income tax liability of Amazon EU S.à.r.l in Luxembourg, with higher royalties resulting in reduced tax payments. The Commission argued that the transfer pricing agreement violated OECD arm's length principles and constituted state aid.

The General Court's judgment rendered in May 2021 contradicted Commission's claims. It found no evidence of a selective advantage being granted to Amazon. The Commission failed to demonstrate that the tax burden had been artificially reduced through overpricing the royalty, a pivotal factor in the General Court's decision. However, the General Court did not address the suitability of OECD arm's length principles for assessing state aid.


2. Advocate General's Opinion

AG Kokott's Opinion focuses on the question of whether the correct reference system was applied by the Commission. The Commission solely relied on the OECD TP Guidelines, despite the absence of explicit reference to these guidelines in Luxembourg law at the time of the tax ruling.

According to the AG, the Commission should have considered Luxembourg’s national law as the relevant reference system for assessing a selective advantage. Moreover, she argues that, even if the CJEU would be bound by the choice of the incorrect reference system, the Commission’s argument would still be unfounded. Namely, in the view of the AG, the method selected in the tax ruling was not manifestly the incorrect method, nor was it manifestly misapplied.

Highlighting the fiscal autonomy of the Member States, the AG emphasizes that only manifestly erroneous tax rulings in favor of the taxpayer can be deemed as granting a selective advantage. As the Commission failed to demonstrate such an advantage, the General Court's decision to annul the Commission's ruling was deemed justified.


3. Our observations

It is the role of the AG to independently propose to the CJEU a legal solution to the cases for which they are responsible. Even if the Opinion of the AG is not binding, their guidance is generally followed by the CJEU. A final decision will be made by the latter upon consideration of the arguments and evidence presented.

The development of this case is expected to have significant implications and provide clarity as regards the reference system in state aid cases.


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