EU Court of Justice rules that Luxembourg did not grant State aid to Amazon

In brief

What happened?

The Court of Justice of the European Union (CJEU) on December 14 rendered its judgment in the European Commission’s (EC’s) appeal against the May 12, 2021 General Court of the European Union (GC) judgment in Luxembourg and Amazon v Commission. In sum, the CJEU upheld the GC judgment despite finding errors in the GC’s reasoning. According to the CJEU, the European Commission’s (EC) decision had to be annulled in any event because of the incorrect determination of the reference system, rather than for the reasons given by the GC.

Why is it relevant?

The present CJEU judgment reiterates that the foundational aspect of any selectivity examination under EU State aid rules is the national law as defined by the respective EU Member State. Consequently, the EC is not permitted to introduce external elements or general principles into the selectivity analysis. In this regard, the judgment aligns with the earlier Grand Chamber judgment of the CJEU on the Engie and FIAT cases (See PwC Insight on Engie and FIAT).

What to consider?

While CJEU judgments are final, this is an individual case directly impacting only this taxpayer. Nevertheless, State aid remains dynamic, and judgments in other cases should be expected. Companies should track these judgments and analyze the impact on their current or planned operations. 

Final CJEU judgment  

The CJEU found that the GC erred in affirming the applicability of the arm’s length principle in the case at hand. Indeed, since the arm’s length principle is not a free-standing principle of EU law, the EC's dependence on it for identifying the reference framework for State aid selectivity analysis is only justified when this principle is integrated into the relevant national tax law. Similarly, the CJEU stated that the OECD transfer pricing Guidelines were not relevant to the transactions as there was no clear citation of the Guidelines in Luxembourg tax law at the time. As a result, the CJEU ruled that the GC judgment was based on an incorrect determination of the relevant reference framework.

Nevertheless, the CJEU upheld the GC’s annulment of the EC decision because the reference framework was incorrectly defined, rather than for the reasons given by the GC. In that regard, the CJEU ruled that the EC erred in recognizing the arm’s length principle as if it were an autonomous principle of EU law that applies regardless of whether it is incorporated into national law. However, to use the arm’s length principle for assessing the existence of a selective advantage under Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), national law must explicitly reference this principle.

Furthermore, according to the CJEU, the EC employed the OECD transfer pricing Guidelines without substantiating their complete or partial formal adoption in Luxembourg's legal framework. This approach contravenes the prohibition against considering external parameters and guidelines, such as the OECD transfer pricing Guidelines, in the evaluation of a selective tax advantage under Article 107(1) TFEU. Such external guidelines are not to be factored into determining the tax burden of an enterprise, unless explicitly referenced by the relevant national tax system.

In light of these considerations, the CJEU ruled that the GC was justified in determining that the EC did not prove the granting of an advantage to the Amazon group. Consequently, the GC was ruled correct in annulling the EC’s decision.