US ecommerce giant Amazon doesn’t have to pay a €250 million euros (roughly $270 million) penalty in back taxes after a favorable ruling from the EU’s top court.
In a press release on Thursday (14 December), the European Court of Justice (ECJ) upheld the General Court decision that Amazon did not benefit from an undue reduction in its tax burden.
The decision lands a significant blow to the European Commission’s efforts to curtail favorable tax deals between member states and big companies. The 27-member bloc had hoped that stricter tax regulations would push corporations to pay more and assist post-pandemic recovery plans.
The Court of Justice says that the Commission had incorrectly defined the “reference system” of laws that applied to the situation and that certain EU rules weren’t part of Luxembourg’s national tax code.
The court concluded that “the Commission decision had to be annulled in any event.”
“The Court of Justice confirms that the commission has not established that the tax ruling given to Amazon by Luxembourg was a state aid that was incompatible with the internal market,” the court further said in its statement.
The ruling on Thursday is final and cannot be appealed against.
Amazon heralded the ruling as a landmark victory that acquits the company of any tax avoidance charges.
“We welcome the Court’s ruling, which confirms that Amazon followed all applicable laws and received no special treatment. We look forward to continuing to focus on delivering for our customers across Europe,” said an Amazon spokesperson.
EU ruling impacts
The ruling can potentially hurt EU competition commissioner Margrethe Vestager’s increasing efforts to crack down on internal tax havens in the EU. Ever since Vestager was appointed, deals between individual countries and companies looking to establish their EU headquarters have come under increased scrutiny.
The case against Amazon dates back to 2017 when Vestager charged Amazon with unfairly profiting from special low tax conditions in Luxembourg. The European Commission argued that Luxembourg allowed Amazon to shift profits to a tax-exempt company and ordered Amazon to repay €250 million in unpaid taxes.
“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three quarters of Amazon’s profits were not taxed,” Vestager told Reuters at the time.
Amazon and Luxembourg challenged the Commission’s decision before the EU’s lower court, the General Court, that same year.
After lengthy deliberations, the General Court ruled in Amazon’s favor in 2021. The court annulled the EU Commission’s decision because they could not prove that Luxembourg had granted a “selective advantage” in favor of Amazon.
The Commission then submitted an appeal against the ruling to the European Court of Justice.
The decision by the European Court of Justice comes days after another loss for the EU in a similar dispute. Earlier this month, French utility Engie won a court battle against an EU order to pay €120 million in back taxes to Luxembourg.
These decisions may set the precedent for other tax disputes between the EU and mega-corporations. Most notable are the Commission’s efforts to make Apple pay €14.3bn in tax to Ireland. The ECJ is expected to make a decision in that case by March next year.
The Amazon case is C-457/21 P Commission v Amazon.com and Others.
