Amazon.com Inc. has won a key appeal against a 2017 decision by the European Commission, the European Union’s executive branch, that ordered it to pay about €250 million in back taxes to Luxembourg.
The company’s legal victory came in the form of a ruling issued today by the bloc’s second-highest court. The General Court of the European Union ruled that the “contested decision must be annulled in its entirety.”
The beginnings of the legal saga can be traced much further back than the 2017 European Commission decision, to 2006, when Amazon organized its EU operations around two subsidiaries. The first subsidiary, Amazon EU SARL, collected all the company’s e-commerce revenue in the bloc. The subsidiary moved most of the profits from those e-commerce sales to a second, Luxembourg-based Amazon unit called Amazon Europe Holding Technologies SCS that didn’t have to pay taxes.
The two units were at the center of the 2017 decision that ordered the company to pay back €250 million, or about $300 million. Officials argued that the arrangement allowed Amazon to pay substantially less tax than other businesses and was therefore illegal. Subsequently, the European Commission ordered that Luxembourg must recover the unpaid taxes.
Today’s ruling from the General Court of the European Union found that it was not proven to “the requisite legal standard that there was an undue reduction of the tax burden” on Amazon. One of the central focus points of the ruling, as well as the original 2017 decision, is the mechanism through which funds moved between Amazon’s two EU subsidiaries.
Amazon EU SARL, the subsidiary that collected revenue from the company’s EU e-commerce sales, transferred profits to the Luxembourg unit in the form of annual royalties. The Commission argued that the size of the royalties was inflated to reduce Amazon EU SARL’s profits to an extent that would also lower its tax obligations. However, the court found that it wasn’t clearly established Amazon’s “tax burden was artificially reduced as a result of an overpricing of the royalty.”
The company welcomed the ruling in a statement to the Wall Street Journal. A spokesperson was quoted as saying that the court decision “is in line with our long-standing position that we followed all applicable laws and that Amazon received no special treatment.”
The ruling follows a high-profile EU case involving another tech giant, Apple Inc., that also focused on taxes. The iPhone maker was ordered to pay €13 million in back taxes in 2016 but successfully appealed the decision last year at the General Court of the European Union. The case could now reportedly be headed to the bloc’s highest court.
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