The European General Court dealt the latest blow to the EU’s crackdown on sweetheart tax deals, though the bloc did prevail in another case against a French energy company.
LUXEMBOURG (CN) — Amazon doesn’t have to pay some $300 million back to Luxembourg, where the e-retail giant has its European headquarters, the European General Court ruled Wednesday.
The order to pay back taxes had come from the European Commission, the EU’s executive branch, in 2017. Leaning on EU regulations that say Amazon must charge itself a fair market price when it transfers intellectual property between subsidiaries, the commission argued at March 2020 hearings in Luxembourg that company struck a 2003 deal with Luxembourg that allowed it to duck taxes on some three-quarters of its profits.
Finding no evidence that the tax arrangement was illegal, however, the European General Court reversed for Amazon on Wednesday.
“It therefore follows that, by none of the findings set out in the contested decision, the Commission has succeeded in establishing to the requisite legal standard the existence of an advantage,” the Luxembourg-based court wrote. An English copy of the ruling was not yet available.
Under established court case law, for a tax arrangement to be considered advantageous, it must benefit a company as compared to so-called “normal” taxation. As the court found, however, the commission used a flawed analysis to determine that LuxOpCo, Amazon’s European branch, had benefited. “The commission has not demonstrated the existence of an advantage for LuxOpCo,” the court’s Seventh Chamber wrote.
Amazon’s European business had a record-breaking year in 2020, taking in 44 billion euros ($53.4 billion) in revenue while most were stuck at home during the pandemic. Still the company filed just Tuesday with Luxembourg that it is exempt from paying taxes because the European side of its business booked a €1.2 billion ($1.4 billion) loss.
“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,” the Seattle-based company said in a statement Wednesday.
Clamping down on advantage tax schemes for multinational corporations has been a major focus for EU competition commissioner Margrethe Vestager. In a separate decision on Wednesday that boosted those efforts, the European General Court nixed an appeal from French energy company Engie over a 2018 order for it to pay back 120 million euros ($146 million), also to Luxembourg.
“The commission has, to the requisite legal standard, shown that the holding companies concerned benefit from preferential tax treatment,” the Second Chamber wrote, in a ruling available only in French.
Vestager has had mixed results in her crackdown of sweetheart tax deals across the bloc. The General Court previously OKed a $33 million penalty for Fiat Chrysler but nixed a $33 million penalty against Starbucks. Most prominently, the court overturned a $15 billion tax bill for Apple, the largest in EU history. Vestager is still looking into deals with Nike and Ikea, both headquartered in the Netherlands.
Last week, Vestager announced a new approach. She opened two investigations into what she called anticompetitive practices by Amazon, one claiming the company misused third-party data and another saying it unfairly pushed sellers on the platform to use its own delivery services.
The Amazon scheme in Wednesday’s case came to light after the Guardian 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.
An earlier leak, known as LuxLeaks, also revealed details about the company’s tax dealings. In an unrelated decision on Tuesday, the European Court of Human Rights upheld the fine against a whistleblower from accountant giant PriceWaterhouseCooper for leaking documents, including Amazon’s European tax returns.
A 1990 EU rule change allowed businesses operating in Europe to headquarter themselves in the country of their choice and companies flocked to the tiny landlocked country of Luxembourg, which has made some 340 tax agreements with giants like Amazon and McDonalds. With a population of just over 600,000, the country is home to the headquarters of more than 50,000 businesses.
The European Commission is expected to appeal the decision.