EU judges will decide on Wednesday whether Amazon has received illegal tax breaks of EUR 250 million in Luxembourg.
The high-profile case is part of the efforts of EU competition boss Margrethe Vestager to take action against tax treaties through her powers over competition-distorting subsidies.
Vestager ordered Luxembourg in 2017 to reclaim the unpaid taxes from the e-commerce giant. Both Luxembourg and Amazon appealed the decision to the EU court.
In another case, which could set a more important precedent for the taxation of multinational corporations, the court will also pass judgment on Wednesday on an EU tax law worth EUR 120 million for French energy giant Engie in Luxembourg.
The Amazon and Engie cases are Vestager’s latest rulings in a number of state aid cases against tax rulings for individual companies. She is still researching the tax practices of Ikea and Nike in the Netherlands and Huhtamäki in Luxembourg.
So far, the judges of the court have supported the Commission in its case against Fiat in Luxembourg and confirmed the principle of applying the EU anti-subsidy rules to combat tax avoidance by multinational companies. But competition officials’ failure to back up those principles with hard evidence cost Vestager when it lost court judgments on Starbucks and the all-important Apple case.
“They may have lost some battles, but they haven’t lost the war,” said Leigh Hancher, professor of European law at Tilburg University, of the Commission’s campaign driven by concerns about unfair taxes.
“The commission and finally the court are very aware of the public concern about these cases,” said Hancher.
Goldcrest project
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 non-taxable subsidiary. Brussels argued that these profits should have been booked in another Luxembourg subsidiary with real staff (over 500 in 2014) and real activities and should therefore have been subject to the Luxembourg corporate tax rate of 29 percent.
“Luxembourg has granted Amazon illegal tax breaks. As a result, almost three quarters of Amazon’s profits were not taxed, ”Vestager said when she announced her decision.
Amazon argued in court that the key to its success lies in its brand name and IP-protected technology that is generated in the US and that it is therefore entitled to park the profits made in Europe in Luxembourg before heading to America to be led back.
One possible outcome of the Amazon case is that the European Commission will have to recalculate the € 250 million that Luxembourg will need to recover from Amazon.
The President of the Court, Marc Van der Woude, asked the parties during the hearing in the case how they would proceed in the “hypothetical” scenario in which the judges would agree with the Commission’s finding that while Amazon in Luxembourg had a treasury contract but wanted to change the amount that the Commission had requested for this benefit.
“Whatever the verdict, this will not stop Amazon from shifting profits to tax havens like Luxembourg,” said Chiara Putaturo, tax expert at the NGO Oxfam.
Putaturo referred to the Amazon Luxembourg accounts published last week. This showed that the company shifted record sales from across Europe to Luxembourg but did not pay taxes there “because it was able to offset this year’s profits with losses from previous years.”
Wednesday’s ruling is likely to be challenged in Europe’s highest court, the EU’s Court of Justice. But that won’t end the EU’s fight with Amazon.
Four years after sending the tax certificate, Vestager accused the US tech giant of abusing its dominant position by misusing data from companies it hosts and opened a new investigation into its logistics and delivery services.
Engie could be the big case
In another ruling due on Wednesday, the court’s judges will rule on two sets of tax rulings that Luxembourg has issued to Engie. According to Vestager, on the basis 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 pay particular attention to this second judgment as it could have important ramifications for the national tax administrations’ assessment of corporate taxation.
According to Raymond Luja, Professor of Tax Law at Maastricht University, in the Engie case, the Commission said that EU countries that have a general anti-abuse rule should always apply it.
“If the court upholds this specific finding, it would restrict the autonomy of tax administrations across the EU, including in countries like Germany,” said Luja.
“Of all ongoing cases, including Apple, Amazon or Fiat, this is the most important question for me for the near future,” said Luja.
Hancher, the EU law professor who is also an advisor to the law firm Baker Botts, said the Commission’s reasoning in the Engie case could lead it to ignore the general tax systems of national authorities and replace its own “ideal” one.
“If the Commission is able to do that, it is very important because it will harmonize national tax rules,” she said.
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