On 4 October 2017, the European Commission (Commission) announced its decision that a 2003 advance pricing agreement, prolonged in 2011, enabled Amazon to pay around EUR 250 million less tax than other taxpayers in a similar legal and factual situation. In parallel, the Commission announced legal proceedings against Ireland for non-compliance with the order of 30 August 2016 to recover over EUR 13 billion from Apple.

The Amazon case

Although the decision is yet to be made public, the Commission’s press announcement (accessible here) indicates that the Commission considers the royalty paid by Amazon EU (AEU) to Amazon Europe Holding Technologies (AEHT), that held certain intangibles, not at arm's length, i.e. not reflecting economic reality. The Commission does not question the ownership of the intangibles by AEHT but finds the royalty paid too high resulting in too low a tax base for AEU. The Commission has in its decision set out the methodology to calculate the sum of unpaid taxes that Luxembourg should recover from Amazon. The estimated sum of recovery, based on information available to the Commission, is calculated at around EUR 250 million (plus interest).

The Commission’s decision in the Amazon case can be challenged before the Court of Justice of the European Union by the Member State involved (Luxembourg), the beneficiary (Amazon), other Member States and other parties who are directly and individually concerned. The Luxembourg Minister of Finance issued a press release (accessible here) stating that he disagrees with the Commission's conclusion and will analyse the decision whether to appeal it.

The Apple case

State Aid procedural rules provide that unlawful aid shall in principle be recovered within four months of the official notification of the Commission decision. This period can be extended in agreement with the Commission if there are significant difficulties. Apple and Ireland have raised this argument, based on the unprecedented recovery amount of EUR 13 billion. More than a year after having issued the recovery order, the Commission now wants to see significant progress.

Practical impact

The Commission’s decisions confirm its commitment to use State Aid as a tool to further a broader tax reform agenda (including the CC(C)TB) for taxing profits where they are realised. Commissioner Vestager welcomed legislative changes in Ireland (to phase out the “double Irish” structures), as well as in Luxembourg and Cyprus regarding the taxation of intragroup financing companies.

Two other formal State Aid investigations into individual tax rulings that are still ongoing involve McDonald’s (Luxembourg) and ENGIE (Luxembourg). More formal State Aid investigations into tax rulings can be expected to follow as the Commission continues to review tax rulings provided by all Member States.