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Amazon wins appeal in blow to Commission tax crackdown

Amazon wins appeal in blow to Commission tax crackdown

by John MONAGHAN 3 min. 12.05.2021 From our online archive
However ECJ's General Court rules in favour of Commission in separate case concerning French utility Engie
Photo credit: Soeren Stache/dpa-Zentralbild/dp

The EU's top court has upheld an appeal by corporate giant Amazon and Luxembourg in a setback for the European Commission which had said a tax deal between the two amounted to illegal state aid.

The European Court of Justice (ECJ) annulled the Commission's ruling in a judgement issued on Wednesday, finding in favour of the appeal brought by Luxembourg and Amazon.

The Commission's 2017 ruling - in which it had ordered Amazon to repay Luxembourg tax authorities €250 million - was based on "analysis which is incorrect in several respects", the ECJ's General Court said. The decision can still be appealed to the higher court within the ECJ.

Amazon was among hundreds of companies which featured in the 2014 Luxleaks journalistic investigation about secret tax rulings Luxembourg handed to companies. This triggered a swathe of cases brought by the EU’s Competition Commissioner, Margrethe Vestager, against such favourable tax rulings.

Not all have gone well for Vestager: last year, the ECJ overturned a Commission order for US tech giant Apple to pay Irish tax authorities €13 billion. And the lower court in 2019 annulled an order for Starbucks to repay Dutch tax authorities €25.7 million, arguing Brussels had failed to show a tax advantage for the coffee giant. The Commission is appealing the first verdict.  

In October 2017, the Commission found that LuxOpCo, a subsidiary of Amazon – which has its European headquarters in Luxembourg - had received illegal state aid between May 2006 and June 2014 in the Grand Duchy.

Accounting practices

The case centred on an accounting practice called transfer pricing in which charges for goods or services of one division of a company causes losses in another, a practice that has been used to reduce corporate taxes.  

Tax authorities also allowed Amazon to create a local limited partnership, which owned the rights to the US parent company's intellectual property, and then charge a fee for the use of the technology to Amazon's business in Luxembourg.

EU Competition Commissioner Margrethe Vestager has said the Commission will "reflect on possible next steps" in the Amazon case
EU Competition Commissioner Margrethe Vestager has said the Commission will "reflect on possible next steps" in the Amazon case

But the court concluded the Commission's arguments were "not capable of establishing that LuxOpCo’s tax burden was artificially reduced."

"We welcome the Court’s decision, which is in line with our long-standing position that we followed all applicable laws and that Amazon received no special treatment," said a spokeswoman for Amazon.    

The Commission will "reflect on possible next steps" following Wednesday's ruling in the Amazon case, Vestager said.

Luxembourg implemented reforms in the wake of LuxLeaks affair, and was considered "largely compliant" in the latest peer review of the OECD, which is trying to harmonise global tax rules. The organisation took Luxembourg off its blacklist of non-compliant entities in 2015.

Commission wins Engie case    

In a separate judgment about energy firm Engie Global - also delivered on Wednesday - the General Court ruled in favour of the Commission.

A convertible loan granted by the Luxembourgish sister company of Engie Global, which is partly owned by France, was at the centre of that case. A Luxembourg tax ruling concerning the loan had constituted illegal state aid, the Commission found in 2018, ordering the repayment of €120 million.

"It cannot be disputed that the Engie group received preferential tax treatment", the court said. 

"Luxembourg will examine the judgment (in the Engie case) with all due diligence and reserves all its rights," a spokesman for Luxembourg's Finance Ministry said. "The judgments do not call into question Luxembourg's commitment to transparency in tax matters and the fight against tax avoidance practices."  

Luxembourg's reputation as a tax haven was back in the headlines earlier this year after another investigation by more than a dozen media groups, known as OpenLux. 

The reports concluded that Luxembourg's financial transparency laws are ineffective in stopping the world's rich and powerful from hiding their money in the country, with Russian mafia leaders, people close to the Venezuelan regime and individuals with ties to organised crime gangs in Italy  among those with funds in the Grand Duchy.

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