News Update EU State Aid Special
On 4 October 2017, the European Commission announced its decision that Amazon´s tax benefits in Luxembourg are illegal under EU State aid rules. The decision concerns the tax treatment of two Amazon group companies in Luxembourg, the operating company, Amazon EU, and its direct parent, Amazon Europe Holding Technologies, under a Luxembourg tax ruling between 2006 and 2014. This ruling allowed Amazon EU to pay royalties for certain intellectual property rights held by the holding company that was not subject to taxation in Luxembourg. Most of the profits were therefore shifted from the operating company to its parent, being a shell company without any employees or offices and no business activities. As a result, almost three-quarters of Amazon's European profits were not taxed. The European Commission concluded that the royalty payments, endorsed by the tax ruling, were inflated as a consequence of which Amazon's taxable profits in Luxembourg did not reflect economic reality. Luxembourg must now recover the illegal advantage of approximately €250 million from Amazon.
On 4 October 2017, the European Commission decided to refer Ireland to the Court of Justice of the European Union ("CJEU") for failure to recover illegal State aid from Apple. In August 2016, the European Commission concluded that Ireland's tax benefits to Apple constituted illegal State aid. It required Ireland to recover up to €13 billion in illegal aid from Apple. The standard deadline for recovery is four months from the official notification of the Commission decision, which would have been 3 January 2017. However, Ireland missed that deadline and has indicated it needs until March 2018 to calculate the exact amount to be recovered from Apple. The fact that Ireland appealed the Commission's decision from 2016, does not suspend its obligation to recover illegal aid. If Ireland does not comply with the judgment of the CJEU, the Commission may initiate a second procedure asking the CJEU to impose penalty payments.
On 20 September 2017, the Court of Justice of the European Union ("CJEU") dismissed an appeal brought by the European Commission regarding the annulment by the General Court ("GC") of its decision to block Slovakia's aid to alcohol spirits company Frucona Košice. This decision has an extensive history, which began in 2004 when the Slovak company, as a result of financial difficulties, reached a settlement with its creditors and the local tax office to pay 35% of the amount it owed to them. The tax authorities agreed to this creditor settlement instead of opting for a tax execution procedure or bankruptcy. In 2006, the European Commission concluded that this write-off of tax debt was incompatible with EU State aid rules because the tax authorities could have recovered a higher amount by initiating the tax execution procedure. In 2010, the GC dismissed the appeal of Frucona. In 2013, the CJEU, while ruling in Frucona Košice’s favor, sent the decision back to the GC for a further assessment. In the meantime the Commission adopted a new decision that sought to correct the errors identified by the court. In March 2016 the GC concluded that the Commission misapplied the "private creditor" test as it did not take into account all the relevant information that a private creditor would have taken into account. In its judgment of 20 September 2017, the CJEU confirmed the GC's conclusion that the Commission should have taken into account the information relating to the duration and the costs of the tax execution procedure, when applying the private creditor test. Following this judgment, the European Commission has to adopt a new decision taking into account the CJEU's instructions relating to the private creditor test. Whether the outcome will be that the creditor settlement has not resulted in any State aid to Frucona remains to be seen.
On 12 September 2017, the General Court upheld the Commission decision to limit the amount of aid that Germany intended for BMW. In 2014, the European Commission decided that aid to BMW's project for the production of electric and hybrid passenger cars was allowed up to an amount of €17 million, contrary to Germany's planned funding of €49 million. The Commission considered that the cost differential between the two locations of Leipzig and Munich, calculated on the basis of, inter alia, structural investment, planning and start-up costs, fixed costs and logistics costs had to be taken into account. As a consequence, the amount of €17 million provided sufficient incentive for the change of the location from Munich to Leipzig, which is situated in a less economically developed region of Germany. Therefore, the Commission found this amount to be proportionate in light of the objective of the aid to promote regional development.
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