CJ confirms Amazon and Luxembourg win in EU State Aid case (Commission v Amazon.com and Others,
Case C-457/21 P)
On 14 December 2023, the CJ sided with Amazon and Luxembourg and dismissed the European Commission’s appeal against a May 2021 judgment of the General Court that had found Amazon did not receive unlawful State aid from Luxembourg. The CJ judgment is final. We assisted Amazon on Luxembourg tax and transfer pricing aspects.
The case concerned the arm’s length nature of a royalty paid by a Luxembourg operating company (LuxOpCo) to a Luxembourg partnership (LuxSCS) – a tax transparent entity in Luxembourg – for the use of certain intangibles (technology, marketing-related intangibles and customer data). In a 2003 tax ruling, the Luxembourg tax authorities had confirmed the arm’s length nature of the deductible royalty payments. The supporting transfer pricing analysis applied the transactional net margin method (TNMM), a one-sided transfer pricing method, with LuxOpCo as tested party. Hence, it determined an arm’s length remuneration for LuxOpCo and any business income in excess of that remuneration served to pay the royalty.
The European Commission disagreed and considered that LuxOpCo’s tax base had been unduly reduced. The General Court in turn found errors of facts and law
in the European Commission’s analysis and annulled the European Commission’s decision. For further background, we refer to our tax flash of 12 May 2021.
The CJ upheld the General Court’s conclusions albeit on different grounds. In line with its landmark Fiat judgment of November 2022, the CJ considered that the OECD transfer pricing guidelines could not form part of the ‘reference framework’, i.e., normal taxation in Luxembourg against which a selective advantage is tested, because Luxembourg law did not explicitly refer to and implement these guidelines. Thus, the decision of the European Commission was vitiated by a fundamental error. The CJ decided that, although the General Court also relied on a wrong reference framework, it had reached the correct outcome. The CJ thus decided to directly rule in final instance and confirm the annulment of the European Commission’s decision.