Wednesday, June 23, 2021

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Amazon.

AMZN 1.05%

com Inc. struck a new blow to European Union efforts to wring more tax from big tech companies when the bloc’s second-highest court sided with the company over a $300 million tax bill.

The EU court on Wednesday annulled a 2017 decision from the European Commission, the EU’s top antitrust authority, that had ordered Amazon to pay 250 million euros in taxes to Luxembourg, the latest of several big EU tax decisions to be overturned.

In its decision, the court backed Amazon, saying that EU regulators had failed to prove that the company got an illegal advantage from tax rulings issued by Luxembourg, and saying that the commission’s analysis had been “incorrect in several respects.”

Amazon said it welcomed the decision, “which is in line with our long-standing position that we followed all applicable laws and that Amazon received no special treatment.”

The ruling is a significant blow to

Margrethe Vestager,

an executive vice president of the commission who is leading a campaign to curb alleged excesses by some of the world’s largest tech companies, including Amazon,

Apple Inc.

and

Alphabet Inc.’s

Google.

Ms. Vestager had already been rebuked once by the same court in a similar case. The General Court overturned her 2016 order that Ireland must recoup some €13 billion in taxes from Apple. Ms. Vestager has since appealed that case to the Court of Justice, the EU’s top court.

Ms. Vestager’s tax cases were among her first big salvos against tech companies in her role running EU competition enforcement. She later fined Google three times for alleged abuses of dominance, which the company is appealing. In recent months, she also filed formal antitrust charges against Amazon and Apple over their treatment of rivals.

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Representatives of the European Commission didn’t immediately respond to a request for comment. An appeal of Wednesday’s decision is possible before the EU’s Court of Justice.

Both the Amazon and Apple tax cases are based on a facet of EU law aimed at creating a level playing field for companies across the bloc by forbidding governments from granting companies some types of state aid.

Wednesday’s decision could limit Ms. Vestager’s efforts to use those rules to go after what she contends were sweetheart tax deals granted to multinational companies based in a handful of EU countries, including Luxembourg and Ireland. In addition to the Amazon and Apple tax cases, Ms. Vestager ordered tax repayments from companies including

Starbucks Corp.

,

Nike Inc.

and Fiat Chrysler, now part of Stellantis NV.

So far Ms. Vestager’s record in tax cases has been mixed. The General Court sided with Apple and Starbucks in their appeals but with Ms. Vestager in the case against Fiat.

In a silver lining for Ms. Vestager on Wednesday, the General Court found in her favor and denied a separate appeal from

Engie SA,

a French state-owned energy company, of the commission’s decision to order Luxembourg to recoup roughly €120 million in unpaid taxes. That case involved a significantly different type of tax structure.

In the Apple case, the General Court annulled the tax decision, saying the commission had failed to meet the legal standards in showing that Apple was illegally given special treatment.

The Amazon tax bill is being annulled as international talks aimed, at least in part, at shifting the taxation of big tech companies are making progress. Those talks, shepherded by the Organization for Economic Cooperation and Development, had been bogged down, leading several countries to impose their own unilateral taxes on big digital companies, including Amazon, over objections from technology trade groups.

Wednesday’s decision concerns a structure Amazon used in Europe as part of a series of transactions known internally inside the company as Project Goldcrest, named for Luxembourg’s national bird.

Under the plan, the company funneled all of its e-commerce sales in the EU through an operating company called Amazon EU SARL. But that company paid a significant royalty every year to an untaxed Luxembourg-registered parent called Amazon Europe Holding Technologies SCS, reducing the operating company’s taxable income.

In its 2017 decision against Amazon, the commission argued that the company had improperly inflated the royalty to eat up the operating company’s profit. The commission said the way Amazon calculated its tax base in Luxembourg was based on a 2003 tax deal, which was prolonged in 2011. The commission ordered Luxembourg to recoup from Amazon €250 million in alleged unpaid taxes over an eight-year period.

Amazon, which has since changed its tax structure, argued in 2020 before the General Court that the commission’s decision was riddled with legal and factual errors, contending that its payments were in keeping with international tax principles and that Luxembourg’s tax rulings didn’t confer an advantage on the e-commerce company. Luxembourg also appealed.

In its appeal, argued in 2020 before the General Court, Amazon said the commission’s decision was riddled with legal and factual errors, contending that its payments were in keeping with international tax principles and that Luxembourg’s tax rulings didn’t confer an advantage on the e-commerce company. Luxembourg also appealed.

In Wednesday’s ruling, the General Court largely agreed with Amazon. It ruled that the commission had failed to show that the royalties, paid for the use of the company’s intellectual property, reduced Amazon’s taxes below what they would have paid under normal tax rules, among other errors.

The U.S. Internal Revenue Service, for its part, had also sought as much as $1.5 billion in additional taxes from Amazon over the same set of transactions, but a U.S. tax court sided with Amazon in 2017, ruling that the IRS had made arbitrary determinations and abused its discretion in several instances. A U.S. appeals court later upheld that decision.

Write to Sam Schechner at sam.schechner@wsj.com

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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