The tax rules concluded by the Luxembourg state with the internet retailer Amazon do not violate EU state aid law. The EU Commission's 2017 decision to force Luxembourg to recover state aid in favor of the group is therefore null and void and must be reversed. With this decision, the EU court in Luxembourg has once again put a stop to the attempt by the Brussels competition authority to use state aid law to prevent alleged tax breaks in favor of individual digital groups. Previously, the court had also overturned the Commission's decision to require the Irish state to recover around 13 billion euros from Apple. The court had also overturned a Commission decision directed against similar tax rules in Belgium.
In the Amazon case, the Commission had ruled in 2017 that Luxembourg had to recover around 250 million euros plus interest from Amazon. At the time, the EU authority had ruled that the Grand Duchy had granted the company inadmissible tax benefits, as a result of which almost three-quarters of Amazon's profits had not been taxed. Specifically, the case concerns a tax model practiced from 2006 to 2014, which was approved by the Luxembourg authorities. It enabled Amazon to offset input services rendered within the company in such a way that the tax liability of the operating company Amazon EU, which is taxable in Luxembourg and responsible for the retail business throughout Europe, remained as low as possible.
The Luxembourg tax assessment provided that Amazon EU paid a high license fee to a holding company that was not taxable in Luxembourg. This eroded much of Amazon EU's taxable profits. According to the Commission, the holding company - as a company without employees or business premises - was "nothing but an empty shell." The tax ruling, which only applied to Amazon, meant that the company paid significantly less tax than other companies, it said. Competition Commissioner Margrethe Vestager had said at the time that the Commission's decision was aimed only at the selective effect of the special notice.
The court now disputes this selective effect. The Commission had failed to prove to the requisite legal standard that the subsidiary's tax burden had been unjustly reduced.In a second, similar tax case, however, the court on Wednesday ruled in favor of the Commission. Its 2018 decision that Luxembourg must reclaim tax benefits of 120 million euros from the French Engie Group is lawful, according to the ECJ. The Commission was right to accuse the Grand Duchy of unlawful selective tax treatment of Engie, it said.
The bone of contention were two tax rulings from 2008, in which the Luxembourg authorities had unilaterally approved two "complex financing structures" created by Engie (formerly EDF-Suez). These artificially reduced the company's tax burden. Certain profits of Engie in Luxembourg have thus been taxed at an effective rate of only 0.3 percent.
Accordingly, the Engie subsidiaries had granted each other interest-free loans. The borrowers had been able to reduce their taxable profits by deducting interest payments as expenses, while the lender's income was assessed as equity compensation. As a result, the same transactions had been classified once as equity and once as debt for tax purposes, the Commission had complained. No taxes at all had been paid on a considerable part of the profits that EDF-Suez had generated in Luxembourg.
The court rejected the Luxembourg objection that the EU Commission had no right to influence national tax law. If national legislation favored individual companies in such a way that the internal market was distorted, the Commission was entitled to intervene. The fact that the court found in favor of the Commission in the Amazon case can apparently be explained - unlike in the Engie case - by errors of law.
Photo by Yender Gonzalez