As published on politico.eu, Tuesday 11 May, 2021.
EU judges on Wednesday will decide whether Amazon received €250 million in illegal tax benefits in Luxembourg.
The high-profile case is part of EU competition chief Margrethe Vestager's efforts to clamp down on sweetheart tax deals through her powers over subsidies that distort competition.
Vestager in 2017 ordered Luxembourg to recover the unpaid taxes from the e-commerce giant. Both Luxembourg and Amazon challenged the decision with the EU General Court.
In another case that could yield a more important precedent for the taxation of multinationals, the General Court on Wednesday is also due to issue a judgment on a €120 million EU tax bill for French energy giant Engie in Luxembourg.
The Amazon and Engie cases are Vestager's latest decisions in a string of state aid cases against tax rulings for individual companies. She is still investigating tax practices of Ikea and Nike in the Netherlands and Huhtamäki in Luxembourg.
So far, the judges at the General Court have backed the Commission in its case against Fiat in Luxembourg and confirmed the principle of using the EU’s anti-subsidy rules to tackle tax avoidance by multinationals. But competition officials' failure to back up those principles with hard evidence cost Vestager when she lost court judgments on Starbucks and the all-important Apple case.
"Maybe they've lost some battles, but they haven't lost the war," Leigh Hancher, a professor of European law at Tilburg University, said about the Commission's campaign, which is driven by concerns over unfair taxation.
"The Commission and eventually the court are very much aware of the public concern with these cases," Hancher said.
The Amazon tax case dates back to 2006, when the company, through an internal project called Goldcrest — after Luxembourg’s national bird — shifted the vast majority of its European profits to a subsidiary without employees and not subject to tax. Brussels argued that these profits should have been recorded in another Luxembourg subsidiary with real staff (over 500 in 2014) and real activities, and thus subject to Luxembourg’s 29 percent corporate tax rate.
“Luxembourg gave illegal tax benefits to Amazon. As a result, almost three-quarters of Amazon’s profits were not taxed,” Vestager said when announcing her decision.
Amazon argued in court that the key to its success lies in its brand name and IP-protected technology, which is generated in the U.S., and that it is therefore entitled to park the profits made in Europe in Luxembourg before repatriating them to America.
One possible outcome of the Amazon case is that the European Commission has to recalculate the €250 million amount Luxembourg needed to recover from Amazon.
General Court President Marc Van der Woude during the oral hearing in the case asked the parties how they would proceed in the “hypothetical” scenario where the judges would agree with the Commission’s finding that Amazon did indeed receive a sweetheart deal in Luxembourg, but would want to change the amount that the Commission had applied to that advantage.
"Whatever is the verdict, this will not stop Amazon from shifting profits to tax havens like Luxembourg," said Chiara Putaturo, a tax expert at NGO Oxfam.
Putaturo referred to Amazon Luxembourg's accounts that were released last week, which showed the company shifted record sales from all over Europe to Luxembourg, but that it did not pay taxes there "because they were able to compensate the profits of this year with losses of previous years."
Wednesday's ruling is likely to be appealed to Europe's highest court, the Court of Justice of the EU. But that won't end the EU's fight with Amazon.
Four years after sending the tax bill, Vestager also charged the U.S. tech giant with abusing its dominant position by misusing data of companies it hosts and opened a new probe into its logistics and delivery services.
In another judgment due Wednesday, the judges of the General Court will rule on two sets of tax rulings Luxembourg issued to Engie. According to Vestager, as a result of the tax rulings, Engie "paid an effective corporate tax rate of 0.3 percent on certain profits in Luxembourg for about a decade."
State aid and tax experts are especially looking out for this second judgment, as it could have important consequences for the way national tax administrations assess corporate taxation.
According to Raymond Luja, a tax law professor at Maastricht University, the Commission said in the Engie case that when EU countries have a general anti-abuse rule, they should always apply it.
"Should the court confirm this specific finding, that would limit the autonomy of tax administrations across the EU, including in countries such as Germany," Luja said.
"Of all ongoing cases, including Apple, Amazon or Fiat, this is for me the most important question for the near future," Luja said.
Hancher, the EU law professor, who is also an adviser at law firm Baker Botts, said that the Commission's reasoning in the Engie case could lead it to ignore national authorities' general tax systems and to substitute its own "ideal one."
"If the Commission gets to do that, that is very important because then it harmonizes national tax rules," she said.