‘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:

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2014, the Amazon group underwent a second restructuring and the contractual arrangement between LuxSCS and LuxOpCo was no longer applicable.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 relevant period, LuxSCS functioned solely as an intangible assets holding company for the Amazon group’s European operations, for which LuxOpCo was responsible as the principal operator. It stated, however, that LuxSCS had also granted intra-group loans to several entities in the Amazon group. The Commission also noted that LuxSCS was a party to several intra-group agreements with ATI, A9 and LuxOpCo …

23

Secondly, as regards LuxOpCo, the Commission placed particular emphasis on the fact that, during the relevant period, LuxOpCo was a wholly owned subsidiary of LuxSCS.

24

According to the Commission, as from the 2006 restructuring of the Amazon group’s European operations, LuxOpCo functioned as the Amazon group’s headquarters in Europe and the principal operator of the Amazon group’s European online retail and service business as carried out through the EU websites. The Commission stated that, in that capacity, LuxOpCo had to manage decision-making related to the retail and service businesses carried out through the EU websites, along with managing key physical components of the retail business. In addition, as the seller of record of the Amazon group’s inventory in Europe, LuxOpCo was also responsible for managing inventory on the EU websites. It held title to that inventory and bore the risks and losses. The Commission further stated that LuxOpCo had recorded revenue in its accounts both from product sales and from order fulfilment. Lastly, LuxOpCo also performed treasury management functions for the Amazon group’s European operations.

25

Next, the Commission indicated that LuxOpCo had held shares in Amazon Services Europe (“ASE”) and Amazon Media Europe (“AMEU”), two Amazon group entities resident in Luxembourg, and also in the subsidiaries of Amazon.com established in the United Kingdom, France and Germany (“the EU local affiliates”), which performed various intra-group services in support of LuxOpCo’s business. During the relevant period, ASE operated the Amazon group’s EU third-party seller business, “Marketplace”. AMEU operated the Amazon group’s EU digital business, such as, for example, the sale of MP3s and eBooks. The EU local affiliates supplied services relating to the operation of the EU websites.

26

The Commission added that, during the relevant period, ASE and AMEU, both Luxembourg resident companies, formed a fiscal unity with LuxOpCo for Luxembourg tax purposes in which LuxOpCo operated as the parent of the unity. Those three entities therefore constituted a single taxpayer.

27

Lastly, in addition to the Licence Agreement concluded between LuxOpCo and LuxSCS, the Commission described in detail certain other intra-group agreements to which LuxOpCo was a party during the relevant period, namely certain service agreements concluded on 1 May 2006 with the EU local affiliates and intellectual property licence agreements concluded on 30 April 2006 with ASE and AMEU, under which ASE and AMEU were granted non-exclusive sub-licences to the intangible assets.

(b) Presentation of the tax ruling at issue

28

Having examined the structure of the Amazon group, the Commission describes the tax ruling at issue.

29

In that regard, first, it referred to the letters of 23 and 31 October 2003, mentioned in paragraphs 8 to 10 [of the judgment under appeal].

30

Secondly, the Commission explained the content of the 2003 transfer pricing report on the basis of which the method for establishing the royalty was proposed.

31

The Commission began by indicating that the 2003 transfer pricing report provided a functional analysis of LuxSCS and LuxOpCo, according to which LuxSCS’s principal activities were limited to those of an intangible assets holding company and a participant in the ongoing development of the intangible assets through the CSA. LuxOpCo was described in that report as managing strategic decision-making related to the EU websites’ retail and service businesses, and also managing the key physical components of the retail business.

32

Next, the Commission stated that the 2003 transfer pricing report contained a section dealing with the selection of the most appropriate transfer pricing method for determining whether the royalty rate complied with the arm’s length principle. Two methods were considered in the report: one based on the comparable uncontrolled price method (“the CUP method”) and another based on the residual profit split method.

33

Applying the CUP method, the 2003 transfer pricing report calculated an arm’s length range for the royalty rate of 10.6 to 13.6% on the basis of a comparison with an agreement between Amazon.com and a retailer in the United States …

34

Applying the residual profit split method, the 2003 transfer pricing report estimated the return associated with LuxOpCo’s “routine functions in its role as the European operating company” based on a mark-up on costs to be incurred by LuxOpCo. To that end, the “net cost plus mark-up” was considered the profit level indicator for the purpose of determining the arm’s length remuneration for the anticipated functions of LuxOpCo. It was proposed that a mark-up of [confidential] be applied to LuxOpCo’s adjusted operating costs. The Commission observed that, according to the 2003 transfer pricing report, the difference between that return and LuxOpCo’s operating profit constituted the residual profit, which was wholly attributable to the use of the intangible assets licensed from LuxSCS. The Commission also stated that, on the basis of that calculation, the authors of the 2003 transfer pricing report had concluded that a royalty rate in a range of 10.1% to 12.3% of LuxOpCo’s net revenues would be consistent with the arm’s length standard under the guidelines of the Organisation for Economic Cooperation and Development (OECD).

35

Lastly, the Commission stated that the authors of the 2003 transfer pricing report had considered that the results converged and had indicated that the arm’s length range for the royalty rate from LuxOpCo to LuxSCS was 10.1% to 12.3% of LuxOpCo’s sales. However, the authors of the 2003 transfer pricing report considered that the residual profit split analysis was more reliable and should therefore be selected.

36

Thirdly, … the Commission stated that, by the tax ruling at issue, the Luxembourg tax administration had accepted that the arrangement for determining the level of the royalty, which in turn had determined LuxOpCo’s annual taxable income in Luxembourg, was at arm’s length. It added that [that decision] was relied upon by LuxOpCo when filing its annual tax declarations.

(c) Description of the relevant national legal framework

37

As regards the relevant national legal framework, the Commission cited Article 164(3) of the [Law on income tax]. According to that provision, “taxable income comprises hidden profit distributions” and “a hidden profit distribution arises in particular when a shareholder, a stockholder or an interested party receives either directly or indirectly benefits from a company or an association which he normally would not have received if he had not been a shareholder, a stockholder or an interested party”. In that context, the Commission explained, in particular, that, during the relevant period, Article 164(3) of the [Law on income tax] was interpreted by the Luxembourg tax administration as enshrining the arm’s length principle in Luxembourg tax law.

(d) Presentation of the OECD transfer pricing framework

38

In recitals 244 to 249 of the [decision at issue], the Commission presented the OECD transfer pricing framework. According to the Commission, “transfer prices”, as understood by the OECD in the guidelines published by that organisation in 1995, 2010 and 2017, are the prices at which a company transfers physical goods or intangible property or provides services to its associated companies. According to the arm’s length principle, as applied in corporate taxation, national tax administrations should only accept the transfer prices agreed between associated group companies for intra-group transactions if those prices reflect what would have been agreed in uncontrolled transactions, that is to say, transactions between independent companies negotiating under comparable circumstances on the market. In addition, the Commission stated that the arm’s length principle is based on the separate entity approach, according to which the members of a corporate group are treated as separate entities for tax purposes.

39

The Commission also indicated that the 1995, 2010 and 2017 OECD Guidelines list five methods for establishing arm’s length pricing for intra-group transactions. Only three of them were relevant for the [decision at issue], namely the CUP method, the transactional net margin method (“the TNMM”) and the transactional profit split method. The Commission described those methods in recitals 250 to 256 of the [decision at issue].

2 Assessment of the tax ruling at issue

44

As regards the third condition for the existence of State aid [laid down in Article 107(1) TFEU], the Commission explained that, where a tax ruling endorses a result that does not reflect in a reliable manner what would result from a normal application of the ordinary tax system, without justification, that ruling will confer a selective advantage on its addressee in so far as that selective treatment results in a lowering of that taxpayer’s tax liability as compared to companies in a similar factual and legal situation. The Commission also considered that, in the present case, the tax ruling at issue had conferred a selective advantage on LuxOpCo by lowering its corporate income tax liability in Luxembourg.

(a) Analysis of the existence of an advantage

46

As a preliminary point, the Commission stated that, in respect of tax measures, an advantage for the purposes of Article 107 TFEU may be granted by reducing an undertaking’s taxable base or the amount of tax due from it. In recital 402 of the [decision at issue], it noted that, according to the Court of Justice, in order to decide whether a method of assessment of taxable income confers an advantage on its beneficiary, it is necessary to compare that method with the ordinary tax system, based on the difference between profits and outgoings of an undertaking carrying on its activities in conditions of free competition. Consequently, according to the Commission, “a tax ruling that enables a taxpayer to employ transfer prices in its intra-group transactions that do not resemble prices which would be charged in conditions of free competition between independent undertakings negotiating under comparable circumstances at arm’s length confers an advantage on that taxpayer, in so far as it results in a reduction of the company’s taxable income and thus its taxable base under the ordinary corporate income tax system”.

47

In the light of those considerations, the Commission concluded, in recital 406 of the [decision at issue], that, in order to establish that the tax ruling at issue confers an economic advantage on LuxOpCo, it had to demonstrate that the transfer pricing arrangement endorsed in the tax ruling at issue produced an outcome that departed from a reliable approximation of a market-based outcome, resulting in a reduction of LuxOpCo’s taxable basis for corporate income tax purposes. According to the Commission, the tax ruling at issue had produced such an outcome.

48

That conclusion is based on a primary finding and three subsidiary findings.

(1) The primary finding of an advantage

49

In … [the decision at issue], … the Commission considered that, by endorsing a transfer pricing arrangement that attributed a remuneration to LuxOpCo solely for “routine” functions and that attributed the entire profit generated by LuxOpCo in excess of that remuneration to LuxSCS in the form of a royalty payment, the tax ruling at issue had produced an outcome that departed from a reliable approximation of a market-based outcome.

50

In essence, by its primary line of reasoning, the Commission considered that the functional analysis of LuxOpCo and LuxSCS set out by the authors of the 2003 transfer pricing report and ultimately accepted by the Luxembourg tax administration was incorrect and could not result in an arm’s length outcome. On the contrary, the Luxembourg tax administration should have concluded that LuxSCS did not perform any “unique and valuable” functions in relation to the intangible assets for which it merely held the legal title.

62

In concluding its primary finding of an economic advantage for the purpose of Article 107(1) TFEU, the Commission indicated that an “arm’s length remuneration” for LuxSCS under the Licence Agreement should have been equal to the sum of the Buy-In and CSA costs incurred by LuxSCS, without a mark-up, plus any relevant costs incurred directly by LuxSCS, to which a mark-up of 5% had to be applied, to the extent that those costs reflected actual functions performed by LuxSCS. In the Commission’s view, that remuneration reflected what an independent party in a position similar to that of LuxOpCo would have been willing to pay for the rights and obligations assumed under the Licence Agreement. In addition, according to the Commission, that level of remuneration would have been sufficient to enable LuxSCS to cover its payment obligations under the Buy-In Agreement and the CSA (recitals 559 and 560 of the [decision at issue]).

63

According to the Commission, since the level of LuxSCS’s remuneration calculated by the Commission was lower than the level of LuxSCS’s remuneration resulting from the transfer pricing arrangement endorsed by the tax ruling at issue, that ruling conferred an advantage on LuxOpCo in the form of a reduction of its taxable base for the purposes of Luxembourg corporate income tax as compared to the income of companies whose taxable profit reflected prices negotiated at arm’s length on the market (recital 561 of the [decision at issue]).

(2) The subsidiary findings of an advantage

64

In … [the decision at issue], … the Commission sets out its subsidiary finding of an advantage, according to which, even if the Luxembourg tax administration were right to have accepted the analysis of LuxSCS’s functions set out in the 2003 transfer pricing report, the transfer pricing arrangement endorsed by the tax ruling at issue was, in any event, based on inappropriate methodological choices that produced an outcome which departed from a reliable approximation of a market-based outcome. The Commission specified that the purpose of its assessment … was not to determine a precise arm’s length remuneration for LuxOpCo but rather to demonstrate that the tax ruling at issue had conferred an economic advantage, since the endorsed transfer pricing arrangement was based on three inappropriate methodological choices which resulted in a lowering of LuxOpCo’s taxable income as compared to companies whose taxable profit reflected prices negotiated at arm’s length on the market.

65

In that context, the Commission made three separate subsidiary findings.

66

In its first subsidiary finding, the Commission stated that LuxOpCo had been inaccurately considered to perform only “routine” management functions and that the profit split method, together with the contribution analysis, ought to have been applied.

69

In Section 9.3 of the [decision at issue], entitled “Selectivity”, the Commission set out the reasons why it considered that the measure at issue was selective.

(c) Identification of the beneficiary of the aid

70

In … [the decision at issue], … the Commission considered that any favourable tax treatment granted to LuxOpCo had also benefited the Amazon group as a whole by providing it with additional resources, with the result that the group had to be regarded as a single unit benefiting from the contested aid measure.

71

… [The] Commission stated [there also] that, since the aid measure was granted every year in which LuxOpCo’s annual tax declaration was accepted by the Luxembourg tax administration, the Amazon group could not object to the recovery of that aid on the basis of the limitation period. In recitals 639 to 645 of the [decision at issue], the Commission set out the methodology for recovery.’

–

in the first place, in the first plea in Case T‑816/17 and in the first to fourth pleas in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon disputed, in essence, the Commission’s primary finding that there was an advantage in favour of LuxOpCo for the purpose of Article 107(1) TFEU;

–

in the second place, in the third complaint in the second part of the first plea in Case T‑816/17 and in the fifth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon disputed the Commission’s subsidiary findings concerning the existence of a tax advantage in favour of LuxOpCo within the meaning of that provision;

–

in the third place, in the second plea in Case T‑816/17 and in the sixth and seventh pleas in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon disputed the Commission’s primary and subsidiary findings in respect of the selectivity of the tax ruling at issue;

–

in the fourth place, in the third plea in Case T‑816/17, the Grand Duchy of Luxembourg submitted that the Commission had infringed the Member States’ exclusive competence in the area of direct taxation;

–

in the fifth place, in the fourth plea in Case T‑816/17 and in the eighth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon maintained that the Commission had infringed their rights of defence;

–

in the sixth place, in the second part of the first plea and the first complaint in the second part of the second plea in Case T‑816/17 and in the eighth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon disputed the relevance in the present case of the 2017 version of the OECD Guidelines, as used by the Commission in adopting the decision at issue; and

–

in the seventh place, in the fifth plea, relied on in support of the form of order sought in the alternative in Case T‑816/17 and in the ninth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon called into question the merits of the Commission’s reasoning concerning the recovery of the aid ordered by that institution.

–

as regards the first subsidiary finding, that the Commission, in wrongly concluding that LuxOpCo’s functions in connection with commercial activities were ‘unique and valuable’ and in failing to seek to identify whether there were external data available from independent undertakings in order to determine the value of the contributions made by LuxSCS and LuxOpCo respectively, had not duly justified that the profit split method, together with the contribution analysis, which it used was the appropriate method for determining transfer pricing in the present case (paragraphs 503 to 507 of the judgment under appeal). The General Court, furthermore, found that the Commission, in particular in that it had not sought to ascertain the correct allocation key for the combined profits of LuxSCS and LuxOpCo that would have been appropriate had those parties been independent undertakings, or even to identify specific factors from which it could be determined that LuxOpCo’s functions in connection with the development of the intangible assets or with its role as headquarters would have conferred entitlement to a greater share of profits as compared with the share of profits actually obtained pursuant to the tax ruling at issue, had not succeeded in establishing that, if the profit split method it used had been applied, LuxOpCo’s remuneration would have been greater and, therefore, that that decision had conferred on that company an economic advantage (paragraphs 518 and 530 of the judgment under appeal).

–

as regards the second subsidiary finding, that the Commission was required to show that the error it had identified in the choice of profit level indicator for LuxOpCo used in the tax ruling had led to a reduction in the tax burden of the recipient of that decision, which meant answering the question of which profit level indicator was appropriate. Having regard to the interpretation given by the Commission to the decision at issue, the General Court held that the Commission had not sought to ascertain the arm’s length remuneration of LuxOpCo or, a fortiori, whether LuxOpCo’s remuneration, endorsed by the tax ruling at issue, was lower than the remuneration that it would have received under arm’s length conditions (paragraphs 546 and 547 of the judgment under appeal);

–

as regards the third subsidiary finding, that, while the Commission had been correct to find that the ceiling mechanism in the remuneration of LuxOpCo based on a percentage of its annual sales was a methodological error, it had not however shown that that mechanism had had an impact on the arm’s length nature of the royalty paid by LuxOpCo to LuxSCS. Consequently, it held that the sole finding that the ceiling had been applied for 2006, 2007 and 2011 to 2013 was not sufficient to establish that LuxOpCo’s remuneration received in respect of those years did not correspond to an approximation of an arm’s length outcome and, therefore, that, by its third subsidiary finding, the Commission had not demonstrated the existence of an advantage for LuxOpCo (paragraphs 575, 576, 585, 586 and 588 of the judgment under appeal).

–

set aside the judgment under appeal;

–

reject the first plea in Case T‑816/17 and the second, fourth, fifth and eighth pleas in Case T‑318/18;

–

refer the case back to the General Court for consideration of the pleas not already assessed;

–

alternatively, make use of its power under the second sentence of the first paragraph of Article 61 of the Statute of the Court of the Justice of the European Union to give final judgment in the matter; and

–

reserve the costs, if it refers the case back to the General Court, or order the Grand Duchy of Luxembourg and Amazon to pay the costs of the proceedings, if the Court of Justice gives final judgment in the matter.

–

dismiss the appeal;

–

in the alternative, refer the case back to the General Court; and

–

order the Commission to bear the costs.

–

dismiss the appeal; and

–

order the Commission to bear the costs.

‘121

It should also be noted that when the Commission uses the arm’s length principle to check whether the taxable profit of an integrated undertaking pursuant to a tax measure corresponds to a reliable approximation of a taxable profit generated under market conditions, the Commission can identify an advantage within the meaning of Article 107(1) TFEU only if the variation between the two comparables goes beyond the inaccuracies inherent in the methodology used to obtain that approximation (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 152).

122

Even though the Commission cannot be formally bound by the OECD Guidelines, the fact remains that those guidelines are based on important work carried out by groups of renowned experts, that they reflect the international consensus achieved with regard to transfer pricing and that they thus have a certain practical significance in the interpretation of issues relating to transfer pricing (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 155).’

1.

Dismisses the appeal;

2.

Orders the European Commission to bear, in addition to its own costs, those incurred by the Grand Duchy of Luxembourg, Amazon.com Inc. and Amazon EU Sàrl;

3.

Orders Ireland to bear its own costs.