International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, January 16, 2015

Luxembourg's Amazon Deal is State Aid Because of Lack of Diligence, EU Commission Decision Released

EU Luxembourg State Aid Investigation Documents: Background 7 October 2014 Press Release

EU Commission Decision Released 16 January 2015 (23 pages) see p. 20 (78)

(78) While tax rulings that merely contain an interpretation of the relevant tax provisions without deviating from administrative practice do not give rise to a presumption of a selective advantage, rulings that deviate from that practice have the effect of lowering the tax burden of the undertakings concerned as compared to undertakings in a similar legal and factual situation. To the extent the Luxembourgish authorities have deviated from the arm’s length principle as regards the contested tax ruling, the measure should also be considered selective.

(79) Since the contested tax ruling fulfils all four conditions under Article 107(1) TFEU, the Commission takes the view, at this stage, that it constitutes State aid within the meaning of that provision.

Background Documents

Comision_Europea_logo.svgAccording to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU), state aid which affects trade between Member States and threatens to distort competition by favouring certain undertakings is in principle incompatible with the EU Single Market. Selective tax advantages may amount to state aid. The Commission does not call into question the general tax regime of Luxembourg.

In June, the Commission has already opened three in-depth investigations into individual tax rulings relating to transfer pricing arrangements in Luxembourg (Fiat Finance and Trade), The Netherlands (Starbucks) and Ireland (Apple) (see IP/14/663).

Bloomberg reported that:

"The EU told Luxembourg officials that the deal, based on a “cosmetic arrangement,” gives the Internet retailer an unfair advantage over competitors and could lead to the repayment of any back taxes that are considered illegal state aid. The comments were in a letter sent in October, and released today, that outlined the EU’s reasons for starting an investigation."....

The intellectual property held by the tax-free unit wasn’t described by Amazon when they requested a ruling from Luxembourg in 2003, the EU’s letter said. The Luxembourgish authorities also failed to outline the underlying assets of the intellectual property, the commission said....

The tax-deductible royalty payments have enabled Amazon to transfer as much as 500 million euros a year to the unit, according to a person familiar with the case who asked not to be identified as the probe is ongoing. ...

“The key question is, did Luxembourg agree too readily to the payment of royalties to an operation which was not taxed and conferred a significant advantage to Amazon,” said Murphy. “The EU should win because it does appear to be an outright case that insufficient questions were being asked.” ...

New York Times reported that - 

And while the state-aid investigation into Amazon’s dealings with Luxembourg tax authorities remains at an early stage, it could result in a European decision that orders the Luxembourg government to recoup a large amount in back taxes from Amazon. Tax experts said a clawback could reach into the tens of millions of dollars, though that would essentially be a rounding error for a behemoth ​that generated $20.5 billion in revenue in the three months through Sept. 30, the latest figures available. ​

https://lawprofessors.typepad.com/intfinlaw/2015/01/luxembourgs-amazon-deal-is-state-aid-because-of-lack-of-diligence-eu-commission-preliminary-conclusi.html

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