Amazon Wins Major Tax Battle Against EU

The EU’s second-highest court sided with Amazon.com (“Amazon”) recently, saying it did not owe millions to Luxembourg in unpaid taxes.  On May 12, 2021, the General Court (“Court”) overturned the European Commission’s (“Commission”) order to Amazon to pay EUR 250 million to Luxembourg, as reimbursement of illegal State aid.

The Court held that the European Commission’s primary finding of an alleged advantage was based on an incorrect analysis.  Precisely, the Court argued that none of the findings set out by the Commission in the contested decision were sufficient to demonstrate the existence of an advantage for the purposes of Article 107(1) of the Treaty on the Functioning of the European Union. Hence, the Court said the decision must be annulled in its entirety.  “The Commission did not prove to the requisite legal standard that there was an undue reduction of the tax burden of a European subsidiary of the Amazon group,” the Court concluded.

In a statement following the Court’s decision on the Amazon State aid case, Executive Vice-President Margrethe Vestager emphasized that, while the Member States have the exclusive right to determine their taxation laws, they must also always respect EU law, including State aid rules.  Furthermore, she alluded to the US proposal for a global minimum corporate tax rate and to an ambitious reform concerning digital markets.  “We are close to achieving a historic global agreement on the reform of the international corporate tax framework. Moreover, the Commission is in the process of putting forward a proposal for a digital levy, so that companies benefiting from the digital single market fairly contribute to the EU budget” Vestager said.

On the other side, Amazon welcomed the Court’s decision, emphasizing that it is in line with their long-standing position that Amazon never broke the law and received no special treatment.

Regardless of the legal defeat, the Commission is not giving up its fight against so-called sweetheart corporate tax deals in the EU as it is now looking to shift the fiscal burden of the COVID-19 economic recovery to the multinationals that have enjoyed a golden era of tax avoidance.  Meanwhile, addressing the digital economy tax challenges is currently also the top priority of the OECD and the G-20. Tax challenges have been a key area of focus within the joint OECD/G-20 Base Erosion and Profit Shifting Project since its inception.

The Court decision on Amazon marks yet another major blow to the EU’s “Tax Lady”, Margrethe Vestager, who is leading a strong crackdown on tax avoidance and sweetheart deals to multinationals.  This is the third time that the EU’s Court found that the Commission failed to prove that a multinational company benefited from State aid.  Namely, the Amazon ruling comes after last year’s setback for the Commission when the Court annulled its landmark State aid ruling on Apple. At the time, the Commission claimed Apple owed Ireland EUR 14.3 billion in taxes and interest. It also comes after the Court overturned a ruling against Starbucks, which had ordered the company to repay EUR 30 million in back taxes to the Dutch government.

In the Amazon case, the Commission can still decide to appeal the court ruling and take the case to the EU’s highest court, the European Court of Justice.  Executive Vice-President stated that the Commission would carefully study the ruling and reflect on possible next steps, so we are eager to see what happens next.