The General Court of the European Union (the “Court”) upheld Amazon’s appeal against the European Commission’s decision that Luxembourg had granted unlawful State aid to Amazon in a 2003 tax ruling, meaning Amazon will not be expected to pay €250 million in back taxes. Meanwhile, French utility company Engie lost its appeal against the Commission’s finding that Luxembourg had granted Engie unlawful State aid and therefore is expected to pay its €120 million tax bill.

These decisions are the latest in a series arising from the Commission’s use of the State aid rules to target what it perceives to be “harmful” tax outcomes. Amazon’s victory follows last year’s landmark judgment in the Apple State aid case, which you can read our thoughts on here. Below, we have set out a summary of the key issues of the recent Amazon and Engie judgments and our view on what it means for Member States’ corporate tax policy.

The Amazon Case

This case centred on two companies (LuxSCS and LuxOpCo) which were incorporated in Luxembourg by the Amazon group. Amazon requested the Luxembourg tax administration to issue a tax ruling confirming the treatment of the companies’ activities for the purposes of Luxembourg corporate income tax. In particular, Amazon requested approval of a certain method of calculating a rate of royalty that LuxOpCo was to pay to LuxSCS under a licence agreement. The Luxembourg tax authority confirmed this method in a tax ruling in 2003 and LuxOpCo made its subsequent tax declarations on the basis of this method of calculation. In 2017, following an investigation, the Commission issued a decision that Luxembourg had granted unlawful State aid to Amazon.

In essence, the Commission considered that the Luxembourg tax administration had granted “favourable tax treatment to Amazon” when it granted the tax ruling. The Commission claimed the endorsed arrangement for determining the level of the royalty was based on inappropriate methodology, which could not result in an arm’s length outcome and consequently resulted in a lowering of LuxOpCo’s taxable income as compared to tax paid by similarly situated companies. The Commission considered that the tax ruling in question, combined with the acceptance of LuxOpCo’s subsequent annual tax declarations, constituted State aid in that it had conferred a selective advantage on LuxOpCo. Luxembourg appealed this decision and Ireland was granted leave to intervene in the case in support of the appeal.

The Court held that in order to demonstrate that the tax ruling conferred an economic advantage on LuxOpCo, the Commission must prove that the particular rate for the royalty deviates from an arm’s length outcome to such an extent that it cannot be regarded as a rate that would have been received on the market under competitive conditions. The Court stated that the mere finding of errors in the choice or application of the transfer pricing method does not, in itself, suffice to demonstrate the existence of an advantage and, therefore, to establish that there is unlawful State aid. By merely identifying errors in the transfer pricing methodology, and in the absence of a comparison between the result that would have been obtained using the transfer pricing method advocated by the Commission and the result actually obtained pursuant to the tax ruling at issue, the Court found that the Commission had not proved to the requisite legal standard that there was in fact a reduction in LuxOpCo’s tax burden and so had not shown that State aid had been granted.

The Engie Case

The Engie case involved two tax rulings provided by the Luxembourg tax administration to two Luxembourg financing structures set up by France’s former natural-gas monopoly. The Commission challenged the tax rulings which allowed a deduction for a payment, but exempted the receipt of the income by a related party on the basis that the rules were not aligned with Luxembourg tax laws such that Engie had been granted a selective advantage.

The Court upheld the Commission’s argument that Luxembourg had selectively deviated from its tax laws and that Engie had gained an unfair advantage as a result of the two tax rulings.  The basis for the decision was that the Luxembourg tax authority had failed to apply the reference system (i.e. the Luxembourg tax system) as it had not applied its general anti-abuse rule.


A trite observation is that the Commission has been largely unsuccessful against US companies but has had more success against EU companies. This is unlikely to have been the expected outcome when the Commission commenced various State aid investigations into tax matters.

The decisions underline that normal tax policies and administrative processes are largely unaffected by State aid. If the “reference system” is applied by a tax authority in giving a ruling, then the mere existence of a ruling is not State aid.  Also, if there is no ruling, it is difficult to see how there can be State aid. Additionally, an error in a process by a tax authority is not State aid, unless the Commission can show that the error resulted in a selective advantage.

The Court declined to accept that there are some overarching EU tax concepts to be applied by Member States, noting that tax is not a harmonised matter. This is a welcome confirmation for taxpayers (not least as no one knows what these concepts might be). As noted in our previous briefing, competition in corporate tax policy based on clear and objective rules is not “harmful”, particularly due to the work done by the OECD in recent years in tackling harmful practices.

So where does this leave the Commission? Subject to a number of appeals, it seems that, absent a tax authority deciding not to apply its law to a particular taxpayer, State aid has no place in tax policy or tax administration. The Commission should re-evaluate its approach to State aid in tax cases in the light of these decisions.

If you would like to discuss this matter in more detail, please contact a member of our Tax team.