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EU General Court annuls European Commission’s Amazon State aid decision

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May 2021

In brief

The General Court (GC) of the European Union, on May 12, rendered its judgments (T-816/17 and T-318/18) regarding the action brought by Amazon group companies and Luxembourg against the European Commission's (EC’s) final State aid decision of October 4, 2017 (SA.38944).

Takeaway: The GC provided in this decision important clarifications regarding the scope of the EC’s burden of proof in establishing the existence of an advantage where the taxable income level of an integrated company belonging to a group is determined by the choice of the transfer pricing method.

The EC may appeal the decision to the EU Court of Justice within two months and 10 days of notification of the decision.  Although the specific facts of the Amazon case cannot be applied to other taxpayers, multinationals should nevertheless monitor the appeals process and consider how the ultimate decisions could impact their situation.


In 2014, the EC launched an investigation into a ruling that the Luxembourg tax authorities had  issued to a Luxembourg tax-resident company of the Amazon group in 2003 and had prolonged in 2011. According to the facts as described in the decision, during the period under scrutiny (until 2014), Amazon EU Sarl (AEU) functioned as the group’s European headquarters and principal operator of Amazon’s European online retail and service business.  AEU was in charge of strategic decisions related to the retail and services business carried on through the EU websites. In order to carry out its operations, AEU used, under a license agreement for intellectual property (IP) rights from Amazon Europe Holding Technologies (AEHT), a Luxembourg partnership. Its functions were to hold the IP and participate in the development of that IP under a cost-sharing arrangement with Amazon US. 

Under the transfer pricing analysis carried out at the time of the ruling, the royalty that AEU paid to AEHT was determined based on the residual profit split method. The transfer pricing report explained why this method was preferable over the comparable uncontrolled price method (CUP), which also was analyzed.

In its decision, the EC concluded that Amazon received an individual selective advantage in the form of the tax ruling because it set a transfer pricing result and methodology that the EC found did not align with the arm’s-length principle. 

GC decision

The GC stated first that, when examining a fiscal measure granted to an integrated company, the EC may compare the tax burden of that undertaking with the tax burden resulting from applying the normal rules of taxation under national law of an undertaking, placed in a comparable factual situation, carrying on its activities under market conditions.

Then, the GC stated that the EC can demonstrate the existence of an advantage in examining the transfer pricing methodology used by an integrated company’s taxable income only if the remuneration applied leads to a reduction in the taxable profit of the company compared with the tax burden of a stand-alone undertaking transacting on the open market subject to application of the normal taxation rules.

In the case at hand, the GC concluded that the EC did not sufficiently demonstrate the existence of an advantage on the following grounds: 

  • The EC relied only on its own functional analysis of AEHT and did not demonstrate that the Luxembourg tax authorities had incorrectly chosen AEU as the tested party in order to determine the amount of the royalty.
  • The EC did not establish the existence of an advantage because the ‘arm’s length’ remuneration proposed by the EC could not be solely calculated on the basis of the mere passing on of intangible asset development costs to AEHT without taking into account the increase in its intangible assets value.
  • The EC was wrong to ascertain the AEHT remuneration on the basis of the supply of ‘low value adding’ services. 
  • The EC failed to prove the undervaluation of the AEU remuneration and did not justify to the requisite legal standard the methodological choice in light of the AEU functions.


Contact us

Maarten Maaskant

International Tax Desk Leader, PwC US

Alina Macovei

Tax Partner, PwC Luxembourg

Tel: + 352 49 48 48 3122

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