European Commission v Grand Duchy of Luxembourg and Others.

• Jurisdiction: European Union
• ECLI: ECLI:EU:C:2023:985
• Date: 14 December 2023
• Docket Number: C-457/21
• Celex Number: 62021CJ0457
• Court: Court of Justice (European Union)

JUDGMENT OF THE COURT (Second Chamber)

14 December 2023 (*)

(Appeal – State aid – Article 107(1) TFEU – Tax ruling adopted by a Member State – Aid declared incompatible with the internal market – Concept of ‘advantage’ – Determination of the reference framework – ‘Normal’ taxation according to national law – Arm’s length principle – Review by the Court of Justice of interpretation and application of national law by the General Court)

In Case C‑457/21 P,

APPEAL under Article 56 of the Statute of the Court of Justice of the European Union, brought on 22 July 2021,

European Commission, represented by P.-J. Loewenthal and F. Tomat, acting as Agents,

appellant,

the other parties to the proceedings being:

Grand Duchy of Luxembourg, represented initially by A. Germeaux and T. Uri, and subsequently by A. Germeaux and T. Schell, acting as Agents, and by J. Bracker, A. Steichen and D. Waelbroeck, avocats,

Amazon.com Inc., established in Seattle (United States),

Amazon EU Sàrl, established in Luxembourg (Luxembourg),

represented by D. Paemen, M. Petite and A. Tombiński, avocats,

applicants at first instance,

Ireland, represented by A. Joyce, acting as Agent, and by P. Baker KC, C. Donnelly, Senior Counsel, B. Doherty, Barrister-at-law, D. Fennelly, Barrister-at-law, and P. Gallagher, Senior Counsel,

intervener at first instance,

THE COURT (Second Chamber),

composed of A. Prechal, President of the Chamber, F. Biltgen, N. Wahl (Rapporteur), J. Passer and M.L. Arastey Sahún, Judges,

Advocate General: J. Kokott,

Registrar: M. Longar, Administrator,

having regard to the written procedure and further to the hearing on 16 March 2023,

after hearing the Opinion of the Advocate General at the sitting on 8 June 2023,

gives the following

Judgment

1 By its appeal, the European Commission seeks to have set aside the judgment of the General Court of the European Union of 12 May 2021, Luxembourg and Amazon v Commission (T‑816/17 and T‑318/18, EU:T:2021:252) (‘the judgment under appeal’), by which the General Court annulled Commission Decision (EU) 2018/859 of 4 October 2017 on State aid SA.38944 (2014/C) (ex 2014/NN) implemented by Luxembourg to Amazon (OJ 2018 L 153, p. 1).

Background to the dispute

2 The background to the dispute was set out in paragraphs 1 to 71 of the judgment under appeal, in its public version, as follows:

‘1 Amazon.com, Inc., which has its registered office in the United States, and the companies under its control (together, “the Amazon group”) carry on online activities, including online retail transactions and the provision of various online services. To that end, the Amazon group manages several internet sites in various languages of the European Union, including amazon.de, amazon.fr, amazon.it and amazon.es.

2 Prior to May 2006, the Amazon group’s European business was managed from the United States. In particular, retail and service activities on the EU websites were carried out by two entities established in the United States, namely Amazon.com International Sales, Inc. (“AIS”) and Amazon International Marketplace (“AIM”), as well as by [other entities] established in France, Germany and the United Kingdom.

3 In 2003, a restructuring of the Amazon group’s business in Europe was planned. That restructuring, which was in fact carried out in 2006 (“the 2006 restructuring”), was structured around the formation of two companies established in Luxembourg (Luxembourg). More specifically, the companies in question were, first, Amazon Europe Holding Technologies SCS (“LuxSCS”), a Luxembourg limited partnership, the partners of which were United States companies, and, secondly, Amazon EU Sàrl (“LuxOpCo”), which, like LuxSCS, had its registered office in Luxembourg.

4 LuxSCS first concluded several agreements with certain Amazon group entities established in the United States, namely:

– licence and assignment agreements for pre-existing intellectual property (together, “the Buy-In Agreement”) with Amazon Technologies, Inc. (“ATI”), an Amazon group entity established in the United States;

– a cost-sharing agreement (“the CSA”) concluded in 2005 with ATI and A9.com, Inc. (“A9”), an Amazon group entity established in the United States. Under the Buy-In Agreement and the CSA, LuxSCS obtained the right to exploit certain intellectual property rights and “derivative works” thereof, which were owned and further developed by A9 and ATI. The intangible assets covered by the CSA consisted essentially of three categories of intellectual property, namely technology, customer data and trade marks. Under the CSA and the Buy-In Agreement, LuxSCS could also sub-license the intangible assets, in particular with a view to operating the EU websites. In return for those rights, LuxSCS was required to pay Buy-In payments and its annual share of the costs related to the CSA development programme.

5 Secondly, LuxSCS entered into a licence agreement with LuxOpCo, which took effect on 30 April 2006, relating to the abovementioned intangible assets (“the Licence Agreement”). Under that agreement, LuxOpCo obtained the right to use the intangible assets in exchange for the payment of a royalty to LuxSCS (“the royalty”).

6 Lastly, LuxSCS concluded an agreement for the licensing and assignment of intellectual property rights with Amazon.co.uk Ltd, Amazon.fr SARL and Amazon.de GmbH, under which LuxSCS received certain trade marks and the intellectual property rights in respect of the EU websites.

7 In 2014, the Amazon group underwent a second restructuring and the contractual arrangement between LuxSCS and LuxOpCo was no longer applicable.

A. The tax ruling at issue

8 In preparation for the 2006 restructuring, Amazon.com and a tax adviser, by letters of 23 and 31 October 2003, requested the Luxembourg tax administration to issue a tax ruling confirming the treatment of LuxOpCo and LuxSCS for the purposes of Luxembourg corporate income tax.

9 By its letter of 23 October 2003, Amazon.com requested approval for the method of calculating the rate of the royalty that LuxOpCo was to pay to LuxSCS from 30 April 2006. That request by Amazon.com was based on a transfer pricing report prepared by its tax advisers (“the 2003 transfer pricing report”). The authors of that report proposed, in essence, a transfer pricing arrangement which, in their view, enabled the determination of the corporate income tax liability which LuxOpCo was required to pay in Luxembourg. More specifically, by [that] letter …, Amazon.com had requested confirmation that the transfer pricing arrangement determining the rate of the annual royalty that LuxOpCo was to pay to LuxSCS under the Licence Agreement, as set out in the 2003 transfer pricing report, would result in an “appropriate and acceptable profit” for LuxOpCo with respect to the transfer pricing policy and Article 56 and Article 164(3) of the loi du 4 décembre 1967 concernant l’impot sur le revenue, telle que modifiée (Law of 4 December 1967 on income tax, as amended) …

10 By letter of 31 October 2003, drafted by another tax adviser, Amazon.com requested confirmation of the tax treatment of LuxSCS, of its partners established in the United States and of the dividends received by LuxOpCo as part of that structure. The letter explained that LuxSCS, as a “Société en Commandite Simple”, did not have a separate tax personality from that of its partners and that, as a result, it was not subject to corporate income tax or net wealth tax in Luxembourg.

11 On 6 November 2003, the Administration des contributions directes du Grand-Duché de Luxembourg (“the Luxembourg tax administration” or “the Luxembourg tax authorities”) sent Amazon.com a letter (“the tax ruling at issue”) which reads, in part, as follows:

“Sir,

After having made myself acquainted with the letter of [O]ctober 31, 2003, directed to me by [your tax advisor] just as with your letter of [O]ctob[er] 23, 2003 and dealing with your position regarding Luxembourg tax treatment within the framework of your future activities, I am pleased to inform you that I may approve the contents of the two letters. …’

12 At the request of Amazon.com, the Luxembourg tax administration extended the validity of the tax ruling at issue in 2010 and effectively applied it until June 2014, when the European structure of the Amazon group was modified. Thus, the tax ruling at issue was applied from 2006 to 2014 (“the relevant period”).

B. The administrative procedure before the Commission

13 On 24 June 2014, the European Commission requested that the Grand Duchy of Luxembourg provide information on the tax rulings granted to the Amazon group. On 7 October 2014, it published the decision to initiate a formal investigation procedure under Article 108(2) TFEU.

…

15 [In the context of that procedure,] Amazon.com submitted to the Commission a new transfer pricing report drawn up by a tax adviser, the purpose of which was to verify ex post whether the royalty paid by LuxOpCo to LuxSCS in accordance with the tax ruling at issue complied with the arm’s length principle (“the 2017 transfer pricing report”).

C. [The decision at issue]

16 On 4 October 2017, the Commission adopted [the decision at issue].

17 Article 1 of that decision reads, in part, as follows:

“The [tax ruling at issue], by virtue of which Luxembourg endorsed a transfer pricing arrangement […] that allowed [LuxOpCo] to assess its corporate income tax liability in Luxembourg from 2006 to 2014 and the subsequent acceptance of the yearly corporate income tax declaration based thereon constitutes [State] aid […]’

1 Presentation of the factual and legal context

…

(a) Presentation of the Amazon group

…

21 The European structure of the Amazon group during the relevant period was presented by the Commission in the following schematic form:

22 First, with regard to LuxSCS, the Commission pointed out that that company did not have any physical presence or employees in Luxembourg. According to the Commission, during the...