Business: Amazon wins $300M fight against EU court over taxes

  • Amazon scores victory after European Court of Justice scraps EU’s USD 300M tax ruling
  • EU court’s ruling shows that case-by-case investigations do not resolve tax dodging
  • European Commission accused the multinational technology firm Amazon of tax avoidance
  • Amazon said the EU court’s decision is in line with their “long-standing position that we followed all laws”

Amazon has won an appeal against the European Commission over a EUR 250M tax ruling (USD 303M, GBP 214M) tracing back to 2017.

Amazon income sales soar

According to the European Court of Justice (ECJ), Amazon is not liable to pay the taxes to Luxembourg as regulators have failed to provide evidence showing that the multinational technology firm was receiving special treatment or breaching state aid laws.

Amazon’s victory follows the European Commission’s monumental defeat against US-based technology giant Apple in 2020, which challenged a EUR 13BN tax order.

Both Apple and Amazon have been on EU Commission Executive VP Margrethe Vestager’s radar for some time now, as part of a broader eight-year campaign to clampdown on nations undercutting tax rates to lure multinational firms to their shores.

Ms Vestager has targeted countries such as Luxembourg, Ireland, Belgium, and the Netherlands, all of which were forced to change their tax ruling practices.

Her work has also prompted the Organisation for Economic Cooperation and Development (OECD) to take action. The intergovernmental economic organisation has called for a shift in how tax large corporations are taxed and are currently engaged in negotiations with the countries it represents on global corporate tax reform.

Calls for a more collaborative international tax system have increased during the COVID-19 pandemic, with many favouring a global tax reform suggesting that the increase in digitalisation has made reforms increasingly necessary.

Court challenges are also piling up; several firms in the EU are already contesting VP Vestager’s tax-repayment orders, arguing that deals to reduce their tax liabilities were legal before the bloc classifying them as “unfair.”

How large firms reduce their tax bills has become a source of increasing political and media focus in the last year. The latest ruling over Amazon’s tax deal will have delivered a significant blow to the Commission as it could help other businesses in their court fights against the EU’s tax probes.

Although EU regulators are planning to introduce a new tax on tech firms if talks about global tax reform fall through, today’s decision by the ECJ suggests that EU regulators will need to do more to end corporate tax avoidance.

Amazon takes victory in court fight with EU

Amazon insists they have always adhered to EU laws

It hasn’t been all bad news for Margrethe Vestager, given that the EU court rejected an appeal from the French multinational electric utility company, Engie SA, against paying a EUR 120M tax order.

However, the Amazon ruling has demonstrated that “the EC cannot solve large-scale tax avoidance on a case-by-case basis,” said Chiara Putaturo, an Oxfam EU tax expert.

Mr Putaturo added: “EU regulators need to do more to end corporate tax avoidance and bolster government coffers to help fuel the recovery.”

The court fight with Amazon was over allegations that the tech firm was awarded EUR 250M in “illegal state aid” tax relief from the Grand Duchy on almost three-quarters of its profits back in 2006.

According to EU regulators, Luxembourg allowed the company to avoid paying tax by channelling funds to a holding company tax-free.

Essentially, what this means is that the multinational company paid nearly five times less in tax than other local businesses adhering to the same rules, which is illegal under the bloc’s state aid rules.

Ms Vestager notes that “EU countries cannot give special treatment or tax benefits to large corporations and exclude other firms.”

And although the amount at stake would have barely made a dent in Amazon’s profits as the technology company generates billions each quarter, the EU court rejected the decision from the EU Commission.

The ECJ said that the EU lacked substantial evidence proving that Amazon had received special treatment from Luxembourg over more than a decade ago – when the US company moved a significant portion of its profits across Europe to the Grand Duchy.

On Wednesday, the ECJ judge said as EU regulators did not provide enough evidence to meet the requisite legal standard, we were forced to reject its claims against the Amazon group.

The decision marked the second time that the ECJ has overturned a tax order by the EC Executive Vice President, with the decision against Apple being the first.

Last year, the judge told Ms Vestager that she had “wrongly accused Apple of receiving selective treatment, and by extension state aid.”

Wednesday ruling against Amazon is the latest blow in the EU’s efforts to crack down on “sweetheart deals”, which they allege allows firms to avoid paying their taxes.

In an emailed statement from the tech firm, it wrote, “the EU court’s decision coincides “with our long-standing position that we followed all applicable laws and received no special tax deal with Luxembourg.”

The email went on to say: “We’re glad that the Court has clarified this, and we can continue to focus on delivering goods and services to our customers across Europe.”

Oxfam’s EU tax expert, Chiara Putaturo, criticised the ECJ’s decision against Amazon. Mr Putaturo said he was disappointed to see that “pandemic profiteers, like Jeff Bezos, continue to see their wealth sail without paying their fair share of tax while poor people fall deeper into poverty.”

Wednesday’s decision also follows reports confirming that Amazon paid no corporation tax in the Grand Duchy this year despite recording an unprecedented sales income of EUR 44BN (GBP 37BN).

Amazon called out for paying zero corporation tax

Amazon shamed for paying no corporation tax

Earlier this month, the Guardian revealed that Amazon paid zero tax in Europe as the company recorded a loss of EUR 1.2BN (GBP 1BN).

Given that the company has collected EUR 44BN in European sales in the last year alone, many have described the news as “appalling.”

The Fair Tax Foundation (FTF) described the scale of tax avoidance as outrageous. A representative from the organisation said the current tax system is unfairly undercutting local businesses, many of which make a fraction of Amazon’s profits.

Amazon also received approximately EUR 56.3 M (GBP 48.3M) in tax credits to use against future EU tax bills and permission from EU regulators to carry more than EUR 2BN in losses to counter future charges.

Chief executive of the FTT, Paul Monaghan, stated that the ruling revealed: “nothing less than the root and branch reform of international rules will realise tax justice.”

He added: “The executive branch of the EU should be commended for giving chase to the Grand Duchy and Amazon for what most people can see is the enablement of tax avoidance.

“That said, it has become clear that pursuing the issue down the ‘illegal state aid’ route is fraught. The ECJ has now ruled against the EC, not once but twice”, referring to the court fight with Apple and Ireland over EUR 13BN of dodged taxes.”

Although US President Joe Biden has unveiled plans to reform global corporate taxation by introducing a global minimum corporate tax rate, he will need the backing of other countries to implement the fairer tax system.

Mr Monaghan is one voice among many urging the UK government to use its position as the G7 to organise a meeting of world leaders to discuss President Biden’s proposal to overhaul global tax rules and stamp out multinational tax dodging.

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