Court of the European Union
PRESS RELEASE No 79/21
Luxembourg, May 12, 2021
Judgment in cases T-816/17
Luxembourg v Commission and T-318/18 Amazon EU Sàrl and
Amazon.com, Inc. v. Commission
Press and information
No selective advantage in favor of a Luxembourg subsidiary of the Amazonas group: the court annulled the Commission's decision to declare the aid incompatible with the internal market
According to the court, the Commission has failed to demonstrate, in accordance with the required legal standard, that the tax burden of a European subsidiary of the Amazon group was inappropriately reduced
From 2006, the Amazon group carried out its commercial activities in Europe through two companies founded in Luxembourg, namely Amazon Europe Holding Technologies SCS (hereinafter: LuxSCS), a Luxembourg limited partnership whose partners were US companies in the Amazon group, and Amazon EU Sàrl (hereinafter: LuxOpCo), a wholly owned subsidiary of LuxSCS.
Between 2006 and 2014, LuxSCS held the intangible assets necessary for the Amazon group's activities in Europe. For this purpose, various agreements have been concluded with US companies in the Amazon group, namely license and assignment agreements for existing intellectual property with Amazon Technologies, Inc. (ATI) (hereinafter: buy-in agreements) and an agreement for the sharing of costs related to the development of these intangible assets (hereinafter: the cost-sharing agreement) with ATI and a second company, A9.com, Inc. Under these agreements, LuxSCS obtained the right to certain intellectual property rights exploit the essentials of technology, customer data and brands and sub-license these intangible assets. On this basis, LuxSCS concluded, among other things, a license agreement with LuxOpCo as the main operator of the Amazon group's business in Europe. Under this agreement, LuxOpCo undertook to pay a license fee to LuxSCS in return for the use of the intangible assets.
On November 6, 2003, at the request of the Amazon Group, the Luxembourg tax authorities issued a tax ruling to this group ('the tax ruling'). The Amazon Group had requested confirmation of the treatment of LuxOpCo and LuxSCS for Luxembourg corporate tax purposes. In particular with regard to the determination of the taxable annual income of LuxOpCo, the Amazon Group had proposed that the license fee to be paid by LuxOpCo to LuxSCS should be calculated using the transaction net margin method ("TNMM") at standard market conditions. Using LuxOpCo as "the tested party".
The tax ruling confirmed, first, that LuxSCS, due to its legal form, is not subject to Luxembourg corporation tax and, second, confirmed the method of calculating the annual license fee that LuxOpCo has to pay to LuxSCS under the aforementioned license agreement.
In 2017, the European Commission determined that this tax provision and its annual implementation from 2006 to 2014, provided it had approved the market method for calculating the license fees to be paid by LuxOpCo to LuxSCS and its annual implementation from 2006 to 2014. constituted state aid within the meaning of Article 107 TFEU, in this case operating aid that is incompatible with the internal market. 1 In particular, the Commission found an advantage in favor of LuxOpCo as the license fee paid by LuxOpCo to LuxSCS during the relevant period – calculated according to the method set out in the tax regulation – was essentially too high, which resulted in a remuneration from LuxOpCo and consequently became its tax base artificially reduced. To that extent is the
1 Decision of the Commission (EU) 2018/859 of 4 October 2017 on state aid SA.38944 (2014 / C) (ex 2014 / NN), implemented by Luxembourg to Amazon (OJ 2018 L 153, p. 1).
The Commission's decision was based on a primary finding and three secondary findings. The primary finding concerned an error related to the "tested party" in applying the TNMM. The three secondary results each concerned an error in the selection of the TNMM as such, an error in the selection of the profit level indicator as a relevant parameter for the application of the TNMM and an error in the inclusion of an upper limit mechanism in the context of the TNMM. After the Commission finally found that the Luxembourg tax rule had been implemented without prior notification to the Commission, it ordered LuxOpCo to recover this aid, which was illegal and incompatible with the internal market.
Luxembourg and the Amazon Group have each brought an action to have this decision set aside. In their actions, they contested, inter alia, each of the findings on which the Commission had based its reasoning as to the existence of an advantage.
In its judgment delivered today, the General Court of the European Union essentially upholds the plaintiffs' pleas in law and arguments contesting both the primary and subsidiary determinations of advantage and consequently annuls the contested decision in its entirety.
Referring to the principles previously set out in relation to the implementation of the “State aid” criteria in tax rulings, the Court provides important clarifications on the scope of the Commission's burden of proof in determining the existence of an advantage when the amount of the taxable income of an integrated company belonging to a group is determined by the choice of transfer pricing method.
Judgment of the court
The court first established the established case law, according to which, when examining tax measures in the light of EU rules on state aid, the existence of an advantage can only be established in comparison to "normal" taxation If there is a tax advantage, the beneficiary's position as a result of the application of the measure in question must be compared with his position without the measure in question and under normal tax rules.
In this context, the court found that the pricing of intercompany transactions carried out by an integrated company of this group is not determined in terms of market conditions. However, if national tax law does not differentiate between integrated companies and stand-alone companies in terms of their corporate income tax liability, it can be assumed that this law is intended to tax the profits from the economic activity of these companies as an integrated company as if it had arisen from transactions at market prices. In those circumstances, when examining a tax measure granted to such an integrated company, the Commission may compare the tax burden of that company resulting from the application of that tax measure with the tax burden resulting from the application of normal tax rules national standards result in the law of a company that finds itself in a comparable situation and carries out its activity under market conditions.
In addition, the Court notes that when examining the method of calculating the taxable income of an integrated company, which is confirmed by a tax ruling, the Commission may find an advantage only when it demonstrates that the methodological errors, which in his opinion influence the transfer pricing, do not allow a reliable approximation of the result at normal market conditions, but lead to a Reduction of the company's taxable profit compared to the tax burden resulting from the application of normal tax rules.
In the light of these principles, the General Court then examines the merits of the Commission's analysis in order to substantiate its finding that the tax decision at issue was made by approving a transfer pricing method which could not reliably approximate the result on market terms LuxOpCo grants an advantage.
In this context, the court is primarily of the opinion that the primary determination of an advantage is based on one Analysis that is wrong in several ways. So, firstly, to the extent that the
Commission relied on your own functional analysis by LuxSCS to essentially claim that this company was contrary to what was taken into account in issuing the tax rule in question merely a passive holder of the intangible assets in question, The court considers this analysis to be wrong. According to the Court in particular, the Commission did not take this into account the functions performed by LuxSCS for the purpose of exploiting the relevant intangible assets or the risks assumed by this company in this context. It didn't show it was easier, either Finding companies that are comparable to LuxSCS than companies that are comparable to LuxOpCoor that choosing LuxSCS as the unit tested would have made it possible to obtain more reliable comparative data. Consequently, contrary to what it found in the contested decision, the Commission did has not found, according to the court, that the
The Luxembourg tax authorities wrongly selected LuxOpCo as the “audited party” to determine the amount of the license fee.
Second, the General Court notes that even if the license fee should have been calculated on market terms using LuxSCS as the 'audited party' in the application of the TNMM, the Commission is the Commission has not demonstrated the existence of an advantage as it was also unfounded to suggest that LuxSCS 'compensation could be calculated on the basis of the mere passing on of the development costs of the intangible assets incurred in connection with the buy-in and cost-sharing agreements without taking into account in any way the subsequent increase in the value of these intangible assets.
Thirdly, the Court considers that the Commission also erred in assessing the remuneration that LuxSCS could expect, in the light of arm's length rule, for the functions related to maintaining ownership of the intangible assets in question. Contrary to what emerges from the contested decision, such functions work cannot be treated in the same way as the provision of low value added serviceswith the result that the Commission applies a mark-up that is most frequently observed for intra-group supplies of "low value added" services not appropriate in the current case.
In the light of all of the above, the Court of First Instance concludes that the elements relied on by the Commission in support of its primary finding are unable to establish that LuxOpCo's tax burden was artificially reduced as a result of an overvaluation of license fees.
Second, after examining the three subsidiary findings of an advantage, the General Court concludes that the Commission has not shown in this context either that the methodological errors found occurred inevitably led to an undervaluation the remuneration that LuxOpCo would have received under market conditions and, accordingly, the existence of an advantage consisting of a reduction in its tax burden. Although the Commission was entitled to assume that certain functions carried out by LuxOpCo in relation to the intangible assets went beyond mere administrative functions, this was the case did not justify the methodological choice with the required legal standard it deduced from this. Nor was it shown why the functions of LuxOpCo as defined by the Commission should be absolutely necessary led to a higher compensation for LuxOpCo. Likewise, both in terms of the choice of the most appropriate profit level indicator and in terms of the cap mechanism approved by the tax rule in question to determine LuxOpCo's taxable income, even if incorrect, the Commission did not meet the evidential requirements necessary to meet.
For those reasons, the General Court concludes that none of the Commission's findings in the contested decision was made are sufficient to prove the existence of an advantage within the meaning of Article 107 (1) TFEU, so that the contested decision must be set aside in its entirety.
NOTE: An appeal against the decision of the court can be lodged within two months and ten days after the announcement of the decision, which is only limited to legal questions.
NOTE: An action for annulment seeks the annulment of acts of the organs of the European Union that violate the law of the European Union. The Member States, the European institutions and individuals can, under certain conditions, bring an action for annulment before the Court of Justice or the General Court. If
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The action is justified, the action is canceled. The institution concerned must fill any legal vacuum created by the repeal of the law.
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European Union posted this content on May 12, 2021 and is solely responsible for the information contained therein. Distributed by the public, unedited and unchanged, on May 12, 2021 19:19:02 UTC.
Publicnow 2021