Introduction: The European Commission’s Decision on Amazon and Luxembourg
On November 28, 2024, the European Commission adopted its decision in the case European Commission v. Amazon and Luxembourg, which was published in the Official Journal of the European Union on November 28, 2025 (Decision EU 2025/2405). This decision analyzes tax agreements applied during several previous fiscal years and their compatibility with European Union state aid rules.
The Commission considered that these agreements constituted illegal state aid under EU law. The decision, reflected in Commission Decision EU 2025/2405, implies that the tax agreements applied did not constitute state aid, so Luxembourg will not recover the alleged tax benefits not paid by Amazon.
This article analyzes the key aspects of the decision, its legal implications, and the repercussions for Amazon and the European Union’s tax framework.
The Case: Amazon and its Tax Agreement with Luxembourg
Amazon has been the subject of controversy in Europe due to its tax practices and agreements with various countries. In particular, Luxembourg has stood out as a recurring destination for multinationals due to its tax regime and the use of tax rulings.
The tax agreement between Amazon and Luxembourg was based on a series of rulings issued over several years, which regulated the allocation of intra-group profits, especially in relation to payments for the use of intangibles. These rulings allowed a significant portion of the profits generated by economic activities carried out in the EU to be attributed to entities within the group with a reduced tax burden.
The European Commission’s investigation was launched after questions were raised as to whether these rulings reflected market conditions comparable to those that would have been agreed between independent parties.
The Accusation: Illegal State Aid
The European Commission accused Luxembourg of granting illegal state aid to Amazon by approving a transfer pricing methodology that resulted in an artificial reduction of the tax base. Under EU law, state aid exists when a tax measure confers a selective advantage that does not result from the normal application of the tax system.
The accusation is based on the arm’s length principle, according to which transactions between related parties must reflect prices and margins equivalent to those that would be agreed between independent companies in comparable conditions. The Commission concluded that the methodology accepted by Luxembourg did not meet this standard.
Consequently, in 2017, the European Commission determined that Luxembourg had granted state aid incompatible with the internal market and ordered the recovery of the undue tax benefits.
How did the tax advantage materialize?
From a technical point of view, the Commission analyzed the allocation of functions, assets, and risks within the Amazon group. It noted that the operating entity assumed key functions and significant economic risks, while another entity in the group, with a limited economic contribution, received disproportionate remuneration through intra-group payments.
In practical terms, the mechanism in question operated as follows:
the profits derived from substantial economic activities were transferred through intra-group payments to an entity with lower effective taxation, without that entity performing equivalent functions or assuming comparable risks. According to the Commission, this allocation would not have been accepted between independent parties under market conditions.
The European Commission’s Decision: EU 2025/2405
In November 2024, following the annulment of the decision by the EU courts, the European Commission acknowledged that, at the time the tax ruling was issued in 2003, the arm’s length principle was not explicitly incorporated into Luxembourg tax law. Therefore, this principle could not legitimately be used as a benchmark for determining the existence of a selective advantage in terms of state aid.
Consequently, the Commission concluded that it was not possible to prove that the Luxembourg tax ruling had conferred a selective advantage on Amazon, i.e., the tax agreements applied did not constitute state aid.
Implications for Amazon and Other Multinationals
For Amazon, the decision means greater legal certainty. It removes the obligation to recover the alleged tax benefits and reinforces the idea that the Commission cannot retroactively apply standards that were not incorporated into existing legislation.
For other multinationals, the case reinforces the need for companies to continue to ensure adequate documentation and consistency in their tax structures. However, the Commission maintains its scrutiny of complex tax practices, which implies continuous monitoring of tax agreements, especially in the areas of transfer pricing and tax planning.
Impact on EU Tax Policy
The Amazon case highlights a stricter approach by the European Commission, which uses state aid control as a complementary tool to monitor the application of transfer pricing and combat structures that erode tax bases within the internal market.
Conclusion
Decision EU 2025/2405 confirms that tax agreements and transfer pricing policies must be sustainable not only from a formal perspective, but also from an economic and functional perspective. The correct allocation of profits based on functions, assets, and risks is consolidated as a central element in avoiding significant contingencies in the European Union.
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Source: TPCases