The EU Commission is facing another defeat in court in a legal dispute over tax advantages for individual companies. In her opinion on Thursday, Advocate General Juliane Kokott recommended to the European Court of Justice (ECJ) that the actions of the Internet retailer Amazon and the Luxembourg state against a Brussels state aid decision be upheld and that the latter be declared null and void (Case C-457/21). The Advocate General is thus following the first-instance judgment of the EU General Court, which had already annulled the Commission's decision.

Werner Mussler

Economic correspondent in Brussels.

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The Advocate General's findings are a kind of draft decision for the ECJ, which pronounces the final verdict. The case is one of several in which the EU Commission had tried to classify so-called tax rulings as inadmissible aid. With such rulings, some Member States determine in advance the tax liability of individual companies. In many cases, the Commission considers this to be an inadmissible toleration or even promotion of aggressive tax avoidance.

The EU authority had ruled in 2017 that Luxembourg had granted Amazon inadmissible tax breaks, as a result of which almost three-quarters of the company's profits had not been taxed. Therefore, the Grand Duchy had to recover 250 million euros from Amazon. The Commission took issue with a tax model that was in place from 2006 to 2014. It enabled Amazon to offset inputs made in the company in such a way that the tax liability of the operating company Amazon EU, which is taxable in Luxembourg and is responsible for the retail business throughout Europe, remained as low as possible.

The tax assessment provided that Amazon EU paid a high royalty to a holding company that was not taxable in Luxembourg. As a result, much of Amazon EU's taxable profit was eaten up. In the Commission's view, the holding company was "nothing but an empty shell". The preliminary ruling, which was valid only for Amazon, had the effect that the company had paid significantly less tax than other companies.

Kokott is of the opinion that the Commission erroneously did not use Luxembourg law as a basis for determining an appropriate level of the licence fee, but the guidelines of the Organisation for Economic Co-operation and Development (OECD), which were not yet in force in Luxembourg at the time. Luxembourg had only adapted its rules to OECD standards in 2016. As a result of this error, Kokott considers that the Commission's decision as a whole is vitiated by an error of law.

Just over a month ago, the Advocate General had recommended to the ECJ in a similar case – it concerned tax advantages for the French Engie Group – to overturn a recovery decision from the Commission. In several other cases – the most spectacular of which concerned Apple in Ireland – the EU courts had annulled Brussels decisions.