Judges from the European Union’s second-highest court have rejected a €250 million ($300 million) tax bill lodged against Amazon in 2017 as part the bloc’s ongoing fight against US tech giants.
The case was one of a number spearheaded by Margrethe Vestager, the European Commissioner for Competition, in which sweetheart tax deals given to powerful corporations were framed as a form of illegal state subsidy. The most notable of these was a 2016 case in which Apple was ordered to pay Ireland €13 billion ($14.9 billion) in back taxes. This decision was annulled in 2020 by the same court involved in today’s ruling.
The Amazon case can be traced back to 2006, when the e-commerce giant established a labyrinthine tax structure in Europe that allowed it to funnel revenue from all EU sales through a subsidiary based in Luxembourg. Internally, Amazon referred to this as Project Goldcrest, named after Luxembourg’s national bird.
Amazon’s Luxembourg subsidiary recorded €44 billion in revenue but paid zero corporation tax
In 2017, the European Commission ruled that this structure was illegal and had allowed Amazon to avoid around €250 million in taxes. “Luxembourg gave illegal tax benefits to Amazon,” said Vestager at the time. “As a result, almost three quarters of Amazon’s profits were not taxed. In other words, Amazon was allowed to pay four times less tax than other local companies subject to the same national tax rules.”
In Amazon’s most recent financial filings it recorded revenue of €44 billion ($53 billion) passing through its Luxembourg subsidiary. But this subsidiary, which has 5,262 employees, also registered €1.2 billion in losses, and so paid zero corporation tax.
In the ruling this morning announced by the General Court of the European Union, judges found that the Commission “did not prove to the requisite legal standard that there was an undue reduction to the tax burden” of Amazon’s Luxembourg subsidiary. The ruling is a significant win for Amazon and a blow for EU politicians hoping to rein in US tech giants.
Although the 2017 ruling has now been annulled, today’s decision can still be appealed to the EU’s highest court, the European Court of Justice. The Apple case overturned in 2020 has already been appealed in this fashion and is awaiting a further ruling.
After details of Project Goldcrest were first revealed, the US Internal Revenue Service (IRS) also filed its own case against Amazon, seeking up to $1.5 billion in back taxes. A federal court judge rejected this case in 2017, saying the figure claimed by the IRS was “arbitrary, capricious, and unreasonable.”
Although decisions like today’s have upheld the legality of Amazon’s tax arrangements, politicians continue to question their overall fairness. In the UK, after The Guardian revealed that Amazon’s Luxembourg subsidiary paid no corporation tax in its most recent financial filings, politicians and activists slammed the system that allowed such skewed financials.
“Amazon’s revenues have soared under the pandemic while our high streets struggle, yet it continues to shift its profits to tax havens like Luxembourg to avoid paying its fair share of tax,” said UK Labour MP Margaret Hodge. “The government must act and help to grasp this once-in-a-generation opportunity to banish corporate tax avoidance to a thing of the past.”