What should accountants take away from Amazon's $270 million tax win?

Retail giant Amazon has emerged victorious in a $270 million long-standing tax dispute with the European Union (EU).

The case, which began in 2017, revolved around allegations that Amazon had received illegal tax benefits in Luxembourg.

The EU’s top court, the Court of Justice, ruled in favour of Amazon, stating that the European Commission failed to establish that a tax arrangement between Amazon and Luxembourg was “state aid that was incompatible with the internal market.”

This decision has far-reaching implications, not only for Amazon but also for accountants off multinational corporations operating in the EU.

The tax battle

The tax dispute between Amazon and the EU dates back several years. In 2017, the European Commission ordered Amazon to repay €250 million in unpaid taxes to Luxembourg.

The Commission argued that Luxembourg had granted undue tax benefits to the online retail giant by allowing it to shift profits to a tax-exempt company, Amazon Europe Holding Technologies.

However, Amazon contested the decision and challenged it before the General Court of the European Union, which annulled the Commission’s charges in 2021.

The ruling will come as a major setback for Margrethe Vestager, the EU’s competition chief, who has been leading efforts to regulate the tax practices of technology companies operating in the 27-member bloc.

The court’s decision affirms that Amazon adhered to all applicable laws and was not granted any preferential treatment.

Implications for financial professionals

This landmark ruling establishes a precedent for other multinational corporations facing similar tax disputes within the EU, potentially making countries like Luxembourg more attractive for businesses seeking to establish their European headquarters.

Amazon’s victory sets a legal precedent that challenges the EU’s approach to tackling aggressive tax planning by large digital companies. It may make it more difficult for the European Commission to take action against similar tax practices in the future.

The ECJ’s decision also raises concerns about the effectiveness and clarity of the EU’s state aid rules. Accountants must navigate through the ambiguity surrounding these rules and ensure that their company’s tax arrangements are in line with the evolving legal framework. Seeking expert advice and conducting thorough tax planning can help accountants mitigate any potential risks or challenges.

Amazon’s case follows a similar dispute involving Apple and Ireland. In 2016, the Commission ordered Ireland to claw back €13 billion in back taxes from Apple. However, Apple won an appeal in 2020 to stop the tax clawback, a decision that is now under challenge by the Commission.

Impact on future tax practices

This ruling could have far-reaching implications for future tax practices within the EU. It may lead to a re-evaluation of the EU’s approach to tax advantages and state aid, potentially resulting in changes to tax laws and regulations.

Accountants and their clients will need to stay abreast of these developments to ensure compliance and to take advantage of any potential benefits. They will also need to prioritise transparency in their company’s tax reporting and ensure that their tax arrangements align with the principles of fairness and accountability.

Chiara Putaturo, Oxfam’s EU tax expert, criticized the decision. “Amazon got an early Christmas present this year, as the company dodged its decade-old tax bill to Luxembourg and can continue to do so,” she said. She called on the EU to work on “real” tax reforms.

Governments worldwide are grappling with the challenge of ensuring that multinational corporations pay their fair share of taxes.