EU Opinion in Case C-457/21 Commission v Amazon and others

Thursday 8th June 2023

EU Opinion in Case C-457/21 Commission v Amazon and others

(State aid)

In a decision of 4 October 2017, the Commission found that Luxembourg had granted illegal state aid to Amazon through a 2003 tax ruling.

In the tax ruling, the Luxembourg tax administration had commented on the appropriate amount of a license fee between two Luxembourg subsidiaries of the Amazon group. The amount has an impact on the corporation tax liability of Luxembourg-based Amazon EU S.à.r.l. The higher the license fee is set, the less corporate income tax is due in Luxembourg.

Luxembourg and Amazon.com mutually agreed on a certain method to determine the appropriate license fee. The Commission regarded this transfer pricing agreement as aid because it did not comply with the arm’s length principles of the OECD. The Commission carried out its own calculation of the appropriate level of royalty using a different method and arrived at a lower royalty. As this would have resulted in a higher corporate tax burden, the tax ruling conferred a selective advantage on the subsidiary that paid the royalty.

Luxembourg and Amazon brought actions for annulment against this decision before the General Court of the EU. In its judgment of May 12, 2021, the General Court declared the Commission decision to be void. On the basis of the OECD guidelines, the court could not find any incorrect determination of transfer pricing. The Commission failed to demonstrate that the tax burden was artificially reduced as a result of an overstatement of the license fee. The question of whether the arm’s length principles of the OECD can be the correct reference system for state aid control was not disputed before the court.

The Commission challenged this judgment of the General Court by means of an appeal before the Court of Justice.

Background Documents C-457/21 P