(CN) — A sweetheart deal in Luxembourg that allegedly allowed retail giant Amazon to avoid millions of dollar in taxes was not improper and the European Commission wrongly classified it as illegal state aid, an adviser to the European Union's top court said Thursday.
It was the latest blow to the EU executive body's campaign in recent years to crack down on corporate tax dodging and sweetheart tax deals that Brussels warns are hurting treasuries and causing frictions among the union's 27 member nations.
In 2017, the European Commission ordered Amazon to pay 250 million euros (about $270 million) in back taxes that it ruled the retail and tech giant should have paid in Luxembourg.
The commission accused Amazon of benefiting from a secret arrangement, dubbed Project Goldcrest, that allowed Amazon to shift profits from one subsidiary to another, allowing the company to reduce its European profits and thus its tax liability.
Amazon and Luxembourg challenged the commission's finding and the case is now under consideration at the European Court of Justice, the EU's highest court.
On Thursday, Juliane Kokott, an advocate general at the Luxembourg court, issued her legal analysis and found the commission erred. Her legal opinion is not binding on the court, but often the high court follows guidance provided by its advocates general.
Kokott said the commission wrongly based its state aid assessment using guidelines from the Organization for Economic Co-operation and Development rather than on Luxembourg's national laws.
The OECD is a Paris-based intergovernmental economic organization that publishes economic data and analyses. It also provides guidance – known as the OECD Transfer Pricing Guidelines – on how to determine if multinational companies are cheating on their taxes by shifting profits out of jurisdictions where they are taxed.
In 2021, the General Court, a lower chamber in the EU court system, ruled against the commission and found that Amazon's tax burden had not been artificially reduced by shifting profits from one subsidiary to the other.
The commission appealed that ruling to the Court of Justice, which is looking more specifically at the use of the OECD guidelines as a method for determining whether Amazon received unfair state aid through the tax scheme.
Kokott said the Court of Justice recently ruled that the OECD guidelines can be used only when an EU state's tax laws make explicit reference to them. She said Luxembourg's tax laws did refer to them in 2003, when Amazon's sweetheart deal was arranged.
Kokott said the commission “incorrectly failed to take the Luxembourg national law as the relevant reference system for its review” of state aid.
“On the basis of that error, all the subsequent considerations in the Commission decision are vitiated by an error of law,” she said.
The commission alleged that almost three quarters of Amazon's profits were not taxed because of the advantages it received.
Brussels has been aggressively challenging advantageous tax deals across the 27-member political and economic union in an effort to prevent member states from undercutting one another.
But its crackdown has run into problems in the courts.
Last November, the Court of Justice shot down the commission's attempt to get Italian carmaker Fiat to pay Luxembourg a 30 million euro ($32 million) tax penalty.
In 2019, Starbucks won a case against the commission, which demanded it owed 30 million euros ($32 million) to the Netherlands.
Its biggest case involves tech giant Apple. The commission is demanding Apple pay about $15 billion in back taxes to Ireland. That case is pending before the Court of Justice.
The Amazon tax scheme focuses on what is known as transfer pricing, in which companies transfer intellectual property between subsidiaries. Under EU regulations, Amazon should have charged itself a fair market price, or what it would have charged a separate company.
The Guardian newspaper reported in 2016 on a trove of documents it obtained from an IRS investigation into Amazon and the company’s opening of European operations in 2003, in a plan named after the goldcrest, the state bird of the Grand Duchy of Luxembourg. Starting in 2006, Amazon was given the beneficial tax arrangement.
Courthouse News reporter Cain Burdeau is based in the European Union.
Follow @cainburdeau
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