12 May 2021. The General Court of the European Union has just announced its ruling on tax breaks for Amazon and French energy group Engie. The two groups went to Court after Commissioner Margrethe Vestager ordered Luxembourg to collect €250 million in taxes from Amazon in 2017. The reason: the Commission argued that the company had enjoyed illegal state aid between 2006 and 2014 due to tax breaks which other companies did not receive. These advantages were based on a Luxembourg tax ruling from 2003, which allegedly allowed Amazon to pay no taxes on about three quarters of its profits in Europe over this period. In 2018, the Commission ordered the Grand Duchy to recover €120 million in taxes from Engie. The case concerns two tax rulings issued in 2008 and 2010, which allegedly allowed Engie to artificially reduce its tax liability for about 10 years.
In its ruling, the Court finds an undue tax advantage for Engie, but not for Amazon. In the case of Engie, the Court finds that the group received a tax advantage due to the non-application of a rule against abuse of law in the contested tax rulings. In the case of Amazon, the General Court finds that the Commission’s methodology did not sufficiently demonstrate that there was a selective advantage and that this advantage would therefore not have been granted to companies in a similar situation. This again shows how difficult it is to fight transfer pricing methods in court. Amazon’s tax advantages, according to the Commission, are based on the excessive payment of intra-group royalties that are sheltered from tax. This allows profits to be shifted to subsidiaries where no taxes are due. In this way, profits are “transferred” within the group. In essence, the EU Commission is concerned with a violation of the so-called “arm’s length principle”. In relation to taxes, this principle is supposed to ensure that transactions between subsidiaries are based on realistic prices. Realistic means here that another company, which is not part of the group, would pay a similar price. The Court did not follow this reasoning.
Sven Giegold, financial and economic spokesperson of the Greens/EFA Group in the European Parliament, commented:
“Our existing laws are not sufficient to enforce tax justice. The continuous legal steps taken by the Commission are important. But individual state aid decisions are no substitute for European tax laws. We need stricter competition rules that set firm limits on state aid in the form of tax breaks. Fair tax rules in Europe are indispensable. State coffers are empty. We can no longer afford to allow European Member States to beggar their neighbours with ‘sweetheart’ tax deals. There is nothing sweet about tax dumping. While the public sector loses billions of euros in tax revenue, the big corporations profit. Small and medium-sized enterprises suffer because they cannot avail themselves of such tax trickery. What is at stake here is a persistent and serious distortion of the internal market. If this is the case, the Commission can and must use Article 116 TFEU to adopt the necessary tax laws with a qualified majority of member states. The unanimity principle in tax matters must not allow tax havens in the EU to prevent any progress.
Joe Biden has recently put forward an ambitious proposal for an effective minimum tax rate of 21% on multinational companies. Such a minimum tax rate would allow Member States to reclaim lost tax revenues from Amazon in the future. This would put an end to Luxembourg’s business model as tax haven. Joe Biden’s ambitious proposal therefore deserves all support. At the same time, public country-by-country reporting must be introduced as soon as possible. Then large corporations will have to disclose their profits and taxes paid per country. This will make it verifiable for everyone whether Amazon and Co. are paying their fair share to society.”
My opinion piece in support of Joe Biden’s progressive tax proposal: https://sven-giegold.de/en/tax-dumping-biden-deserves-full-support/
Press release from the General Court on Amazon: “No selective advantage in favour of a Luxembourg subsidiary of the Amazon group: the General Court annuls the Commission’s decision declaring the aid incompatible with the internal market” https://curia.europa.eu/jcms/jcms/p1_3519455/en/
Press release from the General Court on Engie: “Tax rulings granted by Luxembourg to companies in the Engie group: the General Court finds the existence of a tax advantage” https://curia.europa.eu/jcms/jcms/p1_3519448/en/
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