On 14 December 2023, the Court of Justice of the European Union ("CJEU") decided in favour of Amazon in State aid case C-457/21 P by confirming the General Court's conclusion that the Commission did not demonstrate that Luxembourg granted a selective advantage to Amazon.

Following the opinion of Advocate General ("AG") Juliane Kokott (see our previous newsletter) and relying on the conclusions of the Fiat case (judgment of 8 November 2022, Fiat Chrysler Finance Europe v Commission, C‑885/19 P and C‑898/19 P), the CJEU ruled that by relying on the OECD Transfer Pricing Guidelines to determine the presence of a selective advantage, the Commission did not rely on the correct reference system.

Background to the EC State aid decision

The Luxembourg structure involved a Luxembourg limited partnership ("LuxSCS") held by US entities and a Luxembourg private limited liability company ("LuxOpCo") entirely held by LuxSCS. The latter held intangible assets licensed to LuxOpCo. A tax ruling was granted in 2003 (the "Tax Ruling") by the Luxembourg tax authorities to Amazon in relation with its intellectual property licencing structure. The Tax Ruling, supported by a transfer pricing analysis, notably confirmed the calculation method of the annual tax-deductible royalty payable by LuxOpCo to LuxSCS and the arm's length remuneration to be retained by LuxOpCo.

On 4 October 2017, the European Commission ("EC") decided that Luxembourg granted State aid to Amazon through the Tax Ruling as the transfer pricing agreement was inconsistent with the OECD Transfer Pricing Guidelines ("OECD TPG") and LuxOpCo's tax base was unduly reduced resulting in an individual selective advantage. On 12 May 2021, the General Court of the European Union (the "GCEU") annulled EC's decision considering that it did not demonstrate the existence of an advantage but accepting that the 1995 OECD TPG may be considered in applying the arm's length principle. The EC filed an appeal.

On 8 June 2023, AG Kokott in her opinion, considered that the EC State aid decision should be annulled on the ground that the EC did not rely on the correct reference system (applicable Luxembourg law and relevant administrative practice) by basing its review on various versions of the OECD TPG. AG Kokott also provided additional arguments to annul the EC decision in case the CJEU followed the reference system set by the EC.

CJEU decision

The CJEU started by recalling the four criteria to classify a national measure as State aid under article 107 (1) of the Treaty on the Functioning of the European Union: (i) an intervention by the State or through State resources, (ii) such intervention affects trade between Member States, (iii) it confers a selective advantage to the beneficiary and (iv) it distorts or threaten to distort competition.

The case focused on the third component, the determination of a selective advantage.

To assess whether there has been a selective advantage granted, the EC must identify the applicable reference system (i.e., "the 'normal' tax system applicable in the Member State concerned") and subsequently assess whether the measure under review constitutes a derogation from that reference system. Although on different grounds, the CJEU reached the same conclusion that the GCEU:

  • Despite EC's position, there is no autonomous arm's length principle enshrined in EU Law that applies independently of the incorporation of that principle into Member States' national law.
  • Although certain provisions of the Luxembourg income tax law were interpreted by domestic tax authorities as enshrining the arm's length principle, the EC could rely on this principle to determine the presence of a selective advantage only to the extent such principle was included in national law or was at least explicitly referred to by national law.
  • Luxembourg income tax law having explicitly included the arm's length principle only as from 1st January 2017, thus after the granting of the Tax Ruling, the above requirement was not satisfied, and the principle could not be applied retroactively.
  • By relying on the OECD TPG without demonstrating that they had been explicitly adopted in Luxembourg law, the EC breached the prohibition of relying on parameters and rules external to the national tax system at issue unless the latter made explicit reference to them in the assessment of a selective advantage.

Based on the above, the CJEU concluded that the EC failed to identify the appropriate reference system to assess the presence of a selective advantage, therefore invalidating the full reasoning of the EC.


In line with the Fiat case, the CJEU confirms that when applying State aid rules and identifying a selective advantage, the EC must rely on Member States' domestic legislation and cannot rely on external rules such as the OECD TPG when they have not been included or referred to by Member States' domestic legislation.

This decision brings an additional piece to the limitation of the EC's actions under State aid rules in its investigation of tax rulings.

Originally published Dec 18, 2023

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