By Sam Schechner
Amazon.com Inc. struck a new blow to European Union efforts to
wring more tax from big tech companies when the bloc's
second-highest court sided with the company over a $300 million tax
bill.
The EU court on Wednesday annulled a 2017 decision from the
European Commission, the EU's top antitrust authority, that had
ordered Amazon to pay 250 million euros in taxes to Luxembourg, the
latest of several big EU tax decisions to be overturned.
In its decision, the court backed Amazon, saying that EU
regulators had failed to prove that the company got an illegal
advantage from tax rulings issued by Luxembourg, and saying that
the commission's analysis had been "incorrect in several
respects."
Amazon said it welcomed the decision, "which is in line with our
long-standing position that we followed all applicable laws and
that Amazon received no special treatment."
The ruling is a significant blow to Margrethe Vestager, an
executive vice president of the commission who is leading a
campaign to curb alleged excesses by some of the world's largest
tech companies, including Amazon, Apple Inc. and Alphabet Inc.'s
Google.
Ms. Vestager had already been rebuked once by the same court in
a similar case. The General Court overturned her 2016 order that
Ireland must recoup some EUR13 billion in taxes from Apple. Ms.
Vestager has since appealed that case to the Court of Justice, the
EU's top court.
Ms. Vestager's tax cases were among her first big salvos against
tech companies in her role running EU competition enforcement. She
later fined Google three times for alleged abuses of dominance,
which the company is appealing. In recent months, she has also
filed formal antitrust charges against Amazon and Apple for their
treatment of rivals.
Representatives of the European Commission didn't immediately
respond to a request for comment. An appeal of Wednesday's decision
is possible before the EU's Court of Justice.
Both the Amazon and Apple tax cases are based on a facet of EU
law aimed at creating a level playing field for companies across
the bloc by forbidding governments from granting companies some
types of state aid.
Wednesday's decision could limit Ms. Vestager's efforts to use
those rules to go after what she contends were sweetheart tax deals
granted to multinational companies based in a handful of EU
countries, including Luxembourg and Ireland. In addition to the
Amazon and Apple tax cases, Ms. Vestager ordered tax repayments
from companies including Starbucks Corp., Nike Inc. and Fiat
Chrysler, now part of Stellantis NV.
So far Ms. Vestager's record in tax cases has been mixed. The
General Court sided with Apple and Starbucks in their appeals but
with Ms. Vestager in the case against Fiat.
In a silver lining for Ms. Vestager on Wednesday, the General
Court found in her favor and denied a separate appeal from Engie
SA, a French state-owned energy company, of the commission's
decision to order Luxembourg to recoup roughly EUR120 million in
unpaid taxes. That case involved a significantly different type of
tax structure.
In the Apple case, the General Court annulled the tax decision,
saying the commission had failed to meet the legal standards in
showing that Apple was illegally given special treatment.
The Amazon tax bill is being annulled as international talks
aimed, at least in part, at shifting the taxation of big tech
companies are making progress. Those talks, shepherded by the
Organization for Economic Cooperation and Development, had been
bogged down, leading several countries to impose their own
unilateral taxes on big digital companies, including Amazon, over
objections from technology trade groups.
Wednesday's decision concerns a structure Amazon used in Europe
as part of a series of transactions known internally inside the
company as Project Goldcrest, named for Luxembourg's national
bird.
Under the plan, the company funneled all of its e-commerce sales
in the EU through an operating company called Amazon EU SARL. But
that company paid a significant royalty every year to an untaxed
Luxembourg-registered parent called Amazon Europe Holding
Technologies SCS, reducing the operating company's taxable
income.
In its 2017 decision against Amazon, the commission argued that
the company had improperly inflated the royalty to eat up the
operating company's profit. The commission said the way Amazon
calculated its tax base in Luxembourg was based on a 2003 tax deal,
which was prolonged in 2011. The commission ordered Luxembourg to
recoup from Amazon EUR250 million in alleged unpaid taxes over an
eight-year period.
Amazon, which has since changed its tax structure, argued in
2020 before the General Court that the commission's decision was
riddled with legal and factual errors, contending that its payments
were in keeping with international tax principles and that
Luxembourg's tax rulings didn't confer an advantage on the
e-commerce company. Luxembourg also appealed.
In its appeal, argued in 2020 before the General Court, Amazon
said the commission's decision was riddled with legal and factual
errors, contending that its payments were in keeping with
international tax principles and that Luxembourg's tax rulings
didn't confer an advantage on the e-commerce company. Luxembourg
also appealed.
In Wednesday's ruling, the General Court largely agreed with
Amazon. It ruled that the commission had failed to show that the
royalties, paid for the use of the company's intellectual property,
reduced Amazon's taxes below what they would have paid under normal
tax rules, among other errors.
The U.S. Internal Revenue Service, for its part, had also sought
as much as $1.5 billion in additional taxes from Amazon over the
same set of transactions, but a U.S. tax court sided with Amazon in
2017, ruling that the IRS had made arbitrary determinations and
abused its discretion in several instances. A U.S. appeals court
later upheld that decision.
Write to Sam Schechner at sam.schechner@wsj.com
(END) Dow Jones Newswires
May 12, 2021 06:41 ET (10:41 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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