Amazon State Aid in Luxembourg: The 2003 Tax Ruling Prevails

Introduction

On 28 November 2024, the European Commission adopted Decision (EU) 2025/2405, formally closing its long-running State aid investigation into the Luxembourg tax ruling granted to Amazon in 2003. This decision is significant not because it reopens the substantive transfer pricing debate, but because it confirms, following the Court of Justice’s Amazon judgment, that the assessment of State aid must be strictly anchored in the national corporate income tax framework applicable at the time the ruling was granted. The Commission ultimately concluded that the 2003 ruling did not constitute State aid, primarily due to the inapplicability of an externally derived arm’s length principle under Luxembourg law as it stood in 2003

Facts of the Case

The investigation concerned a tax ruling issued on 6 November 2003 by the Luxembourg tax administration approving Amazon’s European operating structure and a transfer pricing arrangement between Amazon EU Sàrl (LuxOpCo) and Amazon Europe Holding Technologies SCS (LuxSCS). LuxOpCo acted as the European operating company, while LuxSCS, a tax-transparent limited partnership, held intellectual property and received royalties. The ruling confirmed the corporate income tax treatment of LuxOpCo under Luxembourg law and accepted the proposed remuneration mechanism for the use of intangibles.

The Commission initially opened a formal investigation in 2014, arguing that the ruling endorsed a transfer pricing outcome that deviated from the arm’s length principle and thereby conferred a selective advantage. A 2017 Commission decision finding unlawful State aid was annulled by the General Court in 2021, and that annulment was confirmed by the Court of Justice in December 2023. The present 2024 decision was adopted to formally close the still-pending investigation.

Key Legal Findings

The Commission’s decisive legal finding is that the 2003 tax ruling must be assessed exclusively against the Luxembourg corporate income tax rules in force at the time, notably the Law on Income Tax (LIR), including Articles 18 and 164(3). While Article 164(3) LIR addressed hidden profit distributions, it did not explicitly incorporate the arm’s length principle as formulated in Article 9 of the OECD Model Tax Convention.

The Commission accepted the Court of Justice’s clarification that only principles explicitly anchored in national law may define the reference system for State aid selectivity analysis. Since Luxembourg law did not formally codify the arm’s length principle until the introduction of Article 56bis LIR in 2017, the Commission could not retroactively rely on OECD standards to assess the legality of the 2003 ruling. As a result, the entire line of reasoning based on an alleged misapplication of the OECD Transfer Pricing Guidelines was invalidated.

Analytical Commentary

This decision underscores a structural limitation on the Commission’s use of State aid law in direct tax matters. The Amazon case confirms that the corporate income tax system “as a whole” is not an abstract concept shaped by international standards, but a concrete body of domestic law applicable at a given point in time. In 2003, Luxembourg’s CIT framework granted the tax administration discretion in profit allocation matters without explicit statutory reference to the arm’s length principle.

From a doctrinal perspective, the decision reinforces the centrality of the reference system in State aid analysis. Errors in identifying the applicable CIT framework necessarily undermine any finding of selective advantage. The Commission explicitly acknowledged that its earlier doubts were predicated on an assumption namely the incorporation of OECD arm’s length standards into Luxembourg law that could not be sustained in light of the Court of Justice’s case law.

Strategic Insight

For multinational groups and tax administrations alike, the Amazon decision highlights the importance of temporal alignment between tax rulings and the legal framework in force when they are issued. From a controversy perspective, it confirms that historical rulings cannot be reassessed through the lens of subsequently codified transfer pricing principles. For current compliance, however, the case also serves as a reminder that once the arm’s length principle is explicitly embedded in domestic CIT law, tax rulings and transfer pricing outcomes will be fully exposed to State aid scrutiny based on that standard.

How Can MCORE Law Help

MCORE Law assists multinational groups and investors in navigating the intersection of corporate income tax, transfer pricing, and EU State aid law. We advise on the robustness of advance pricing arrangements, assess legacy rulings against evolving EU jurisprudence, and support clients in audits, investigations, and litigation involving selective advantage and reference system analysis. Our approach combines technical tax precision with strategic foresight, ensuring that both historical and future structures remain defensible in an increasingly coordinated European enforcement environment.