EU lower court annuls State aid decision in Amazon case but upholds finding of State aid in ENGIE case

On 12 May 2021, the General Court of the EU issued its judgments concerning the appeals brought by Amazon and Luxembourg, respectively ENGIE and Luxembourg, against the European Commission decisions of October 2017 and June 2018 finding that Luxembourg granted unlawful State aid to Amazon respectively ENGIE by means of various tax rulings. The General Court annulled the decision in the Amazon case, finding that the European Commission had not demonstrated the existence of a selective advantage but upheld the ENGIE decision. The losing party in each of these cases may file an appeal on points of law with the Court of Justice of the EU within two months and ten days of the notification.

The Amazon case provides additional key lessons on transfer pricing for European taxpayers, notably as regards the functional analysis in connection with the legal ownership of intangibles and the use of OECD guidance to apply the arm’s length principle. The General Court found many errors in the Commission’s reasoning, including on the functional analysis and the application of the Transaction Net Margin Method (TNMM). As local tax authorities in many countries regularly take positions similar to the Commission’s position, this decision potentially can impact many current transfer pricing disputes within Europe.

In the ENGIE case, the General Court upheld the finding of aid on various grounds. The most relevant points concern the application of the Luxembourg anti-abuse rule and the adoption of an economic approach to assess the tax treatment of a series of related transactions by looking at them as a whole single arrangement.

To read more on the Amazon judgment, please click here. To read more on the ENGIE judgment, please click here.

In addition, two other recent State aid developments took place over the past week:

  • On 10 May 2021, the Court of Justice of the EU heard an appeal brought by Fiat against a General Court judgment of 2019 confirming the European Commission’s finding that Luxembourg had granted unlawful State aid to Fiat by means of an advance pricing agreement.
  • On 5 May 2021, the European Commission published plans to tackle selective tax benefits granted by non-EU member states that distort the EU single market. These rules, if adopted by the EU legislative bodies, may affect foreign companies involved in EU mergers and acquisitions or that intend to participate in EU public tenders.