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After last year’s landmark ruling in Apple’s state aid case, the General Court of the European Union recently issued two major state aid and tax policy rulings.


The General Court of the European Union (the “dish“Confirmed Amazon’s appeal against the European Commission’s decision that Luxembourg had granted Amazon illegal state aid in a 2003 tax ruling, which means that Amazon is unlikely to pay 250 million euros in back taxes. Meanwhile, French energy company Engie has lost its appeal against the Commission’s finding that Luxembourg granted Engie unlawful state aid and is therefore expected to pay its tax debt of € 120 million.

These decisions are the latest in a series of decisions resulting from the Commission’s application of state aid rules to target what it considers to be ‘harmful’ tax consequences. Amazon’s victory follows last year’s landmark judgment in the Apple aid case, which you can read our thoughts on here. Below we have compiled a summary of the key issues raised in the recent Amazon and Engie judgments and our views on their implications for corporate tax policies in member states.

The Amazon case

At the center of this case were two companies (LuxSCS and LuxOpCo) that were founded by the Amazon group in Luxembourg. Amazon applied to the Luxembourg tax authorities for a tax ruling confirming the treatment of the company’s activities for the purposes of Luxembourg corporate income tax. In particular, Amazon requested approval of a specific method of calculating a license fee that LuxOpCo would pay to LuxSCS under a license agreement. The Luxembourg tax authorities confirmed this method in a tax ruling in 2003 and LuxOpCo has drawn up its subsequent tax returns on the basis of this calculation method. In 2017, following an investigation, the Commission issued a decision that Luxembourg had granted unlawful state aid to Amazon.

In essence, the Commission took the view that the Luxembourg tax administration had granted Amazon “preferential tax treatment” when issuing the tax ruling. The Commission alleged that the approved agreement to determine the level of royalties was based on an inadequate methodology which could not lead to a market outcome and consequently resulted in a reduction in LuxOpCo’s taxable income compared to taxes paid by similarly located companies . The Commission considered that the tax ruling in question, combined with the acceptance of the subsequent annual tax returns from LuxOpCo, constituted State aid as it had conferred a selective advantage on LuxOpCo. Luxembourg appealed against that decision and Ireland was granted leave to intervene in support of the appeal.

The Court found that, in order to demonstrate that the tax ruling gave LuxOpCo an economic advantage, the Commission had to prove that the respective rate for the license fee deviated so greatly from a market result that it could not be regarded as a rate which have been placed on the market under competitive conditions. The Court found that the mere finding of errors in the choice or application of the transfer pricing method is not sufficient to establish the existence of an advantage and thus the existence of unlawful State aid. By merely finding errors in the transfer pricing method and in the absence of a comparison between the result that would have been achieved with the transfer pricing method advocated by the Commission and the result actually achieved under the tax ruling at issue, the court found that the Commission had not provided sufficient legal evidence that the tax burden of LuxOpCo had indeed been reduced and thus had not shown that State aid had been granted.

The Engie case

The Engie case concerned two tax rulings by the Luxembourg tax administration for two Luxembourg financing structures set up by the former French 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 because the rules were inconsistent with Luxembourg tax law and 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 through the two tax rulings. The basis for the decision was that the Luxembourg tax authority had not applied the reference system (ie the Luxembourg tax system) as it had not applied its general anti-abuse rule.


A banal observation is that the Commission was largely unsuccessful against US companies, but had more success against EU companies. This was probably not the result expected when the Commission launched various state aid investigations into tax matters.

The decisions underline that normal tax policies and administrative procedures remain largely unaffected by state aid. If the “reference system” is used by a tax authority when issuing a preliminary ruling, the mere existence of a preliminary ruling does not constitute state aid. Even if there is no decision, it is difficult to see how state aid can exist. Furthermore, a procedural error by a tax authority does not constitute State aid unless the Commission can show that the error resulted in a selective advantage.

The Court of Justice refused to accept that there are some overarching EU tax concepts to be applied by Member States, noting that taxes are not a harmonized matter. This is a welcome endorsement for the taxpayer (not least because nobody knows these concepts). As mentioned in our previous briefing, based on clear and objective rules, competition in corporate tax policy is not “harmful”, particularly due to the work of the OECD in recent years to combat harmful practices.

So where is the Commission? Subject to a range of legal remedies, state aid does not appear to have a place in tax policy or tax administration if a tax authority does not decide to apply its law to a particular taxpayer. The Commission should reassess its approach to state aid in tax matters in the light of these decisions.