JUDGMENT OF THE GENERAL COURT (Seventh Chamber, Extended Composition)

12 May 2021 ( *1 )

(State aid – Aid implemented by Luxembourg in favour of Amazon – Decision declaring the aid incompatible with the internal market and unlawful and ordering its recovery – Tax ruling – Transfer pricing – Selective tax advantage – Transfer pricing arrangement – Functional analysis)

In Cases T‑816/17 and T‑318/18,

Grand Duchy of Luxembourg, represented by T. Uri, acting as Agent, and by D. Waelbroeck, A. Steichen and J. Bracker, lawyers,

applicant in Case T‑816/17,

supported by

Ireland, represented by J. Quaney and A. Joyce, acting as Agents, and by P. Gallagher, Senior Counsel, B. Doherty, Barrister, and S. Kingston, Senior Counsel,

intervener in Case T‑816/17,

Amazon EU Sàrl, established in Luxembourg (Luxembourg),

Amazon.com, Inc., established in Seattle, Washington (United States),

represented by D. Paemen, M. Petite and A. Tombiński, lawyers,

applicants in Case T‑318/18,

v

European Commission, represented, in Case T‑816/17, by P. Stancanelli, P.‑J. Loewenthal and F. Tomat, acting as Agents, and by M. Chammas, lawyer, and, in Case T‑318/18, by P.-J. Loewenthal and F. Tomat,

defendant,

ACTIONS pursuant to Article 263 TFEU for the annulment of Commission Decision (EU) 2018/859 of 4 October 2017 on State aid SA.38944 (2014/C) (ex 2014/NN) implemented by Luxembourg to Amazon (OJ 2018 L 153, p. 1),

THE GENERAL COURT (Seventh Chamber, Extended Composition),

composed of M. van der Woude, President, V. Tomljenović (Rapporteur) and A. Marcoulli, Judges,

Registrar: S. Spyropoulos, Administrator,

having regard to the written part of the procedure and further to the hearing on 5 and 6 March 2020,

gives the following

Judgment

I. Background to the dispute

1 Amazon.com, Inc., which has its registered office in the United States, and the companies under its control (together, ‘the Amazon group’) carry on online activities, including online retail transactions and the provision of various online services. To that end, the Amazon group manages several internet sites in various languages of the European Union, including amazon.de, amazon.fr, amazon.it and amazon.es.

2 Prior to May 2006, the Amazon group’s European business was managed from the United States. In particular, retail and service activities on the EU websites were carried out by two entities established in the United States, namely Amazon.com International Sales, Inc. (‘AIS’) and Amazon International Marketplace (‘AIM’), as well as by others established in France, Germany and the United Kingdom.

3 In 2003, a restructuring of the Amazon group’s business in Europe was planned. That restructuring, which was in fact carried out in 2006 (‘the 2006 restructuring’), was structured around the formation of two companies established in Luxembourg (Luxembourg). More specifically, the companies in question were, first, Amazon Europe Holding Technologies SCS (‘LuxSCS’), a Luxembourg limited partnership, the partners of which were United States companies, and, secondly, Amazon EU Sàrl (‘LuxOpCo’), which, like LuxSCS, had its registered office in Luxembourg.

4 LuxSCS first concluded several agreements with certain Amazon group entities established in the United States, namely: – licence and assignment agreements for pre-existing intellectual property (together, ‘the Buy-In Agreement’) with Amazon Technologies, Inc. (‘ATI’), an Amazon group entity established in the United States; – a cost-sharing agreement (‘the CSA’) concluded in 2005 with ATI and A9.com, Inc. (‘A9’), an Amazon group entity established in the United States. Under the Buy-In Agreement and the CSA, LuxSCS obtained the right to exploit certain intellectual property rights and ‘derivative works’ thereof, which were owned and further developed by A9 and ATI. The intangible assets covered by the CSA consisted essentially of three categories of intellectual property, namely technology, customer data and trade marks. Under the CSA and the Buy-In Agreement, LuxSCS could also sub-license the intangible assets, in particular with a view to operating the EU websites. In return for those rights, LuxSCS was required to pay Buy-In payments and its annual share of the costs related to the CSA development programme.

5 Secondly, LuxSCS entered into a licence agreement with LuxOpCo, which took effect on 30 April 2006, relating to the abovementioned intangible assets (‘the Licence Agreement’). Under that agreement, LuxOpCo obtained the right to use the intangible assets in exchange for the payment of a royalty to LuxSCS (‘the royalty’).

6 Lastly, LuxSCS concluded an agreement for the licensing and assignment of intellectual property rights with Amazon.co.uk Ltd, Amazon.fr SARL and Amazon.de GmbH, under which LuxSCS received certain trade marks and the intellectual property rights in respect of the EU websites.

7 In 2014, the Amazon group underwent a second restructuring and the contractual arrangement between LuxSCS and LuxOpCo was no longer applicable.

A. The tax ruling at issue

8 In preparation for the 2006 restructuring, Amazon.com and a tax adviser, by letters of 23 and 31 October 2003, requested the Luxembourg tax administration to issue a tax ruling confirming the treatment of LuxOpCo and LuxSCS for the purposes of Luxembourg corporate income tax.

9 By its letter of 23 October 2003, Amazon.com requested approval for the method of calculating the rate of the royalty that LuxOpCo was to pay to LuxSCS from 30 April 2006. That request by Amazon.com was based on a transfer pricing report prepared by its tax advisors (‘the 2003 transfer pricing report’). The authors of that report proposed, in essence, a transfer pricing arrangement which, in their view, enabled the determination of the corporate income tax liability which LuxOpCo was required to pay in Luxembourg. More specifically, by the letter of 23 October 2003, Amazon.com had requested confirmation that the transfer pricing arrangement determining the rate of the annual royalty that LuxOpCo was to pay to LuxSCS under the Licence Agreement, as set out in the 2003 transfer pricing report, would result in an ‘appropriate and acceptable profit’ for LuxOpCo with respect to the transfer pricing policy and Article 56 and Article 164(3) of the loi du 4 décembre 1967 concernant l’impot sur le revenue, telle que modifiée (Law of 4 December 1967 on income tax, as amended) (‘the LIR’). The method of calculating the royalty payable by LuxOpCo to LuxSCS set out in the letter of 23 October 2003 was described as follows: ‘1. Compute and allocate to LuxOpCo the “LuxOpCo Return”, which is equal to the lesser of (a) [confidential]% ( 1 ) of LuxOpCo’s total EU Operating Expenses for the year and (b) total EU Operating Profit attributable to the European Web Sites for such year; 2. The License Fee shall be equal to EU Operating Profit minus the LuxOpCo Return, provided that the License Fee shall not be less than zero; 3. The Royalty Rate for the year shall be equal to the License Fee divided by total EU Revenue for the year; 4. Notwithstanding the foregoing, the amount of the LuxOpCo Return for any year shall not be less than 0.45% of EU Revenue, nor greater than 0.55% of EU Revenue; 5. (a) In the event that the LuxOpCo Return determined under step (1) would be less than 0.45% of EU Revenues, the LuxOpCo Return shall be adjusted to equal the lesser of (i) 0.45% of Revenue or EU Operating Profit or (ii) EU Operating Profit; (b) In the event that the LuxOpCo Return determined under step (1) would be greater than 0.55% of EU Revenues, the LuxOpCo Return shall be adjusted to equal the lesser of (i) 0.55% of EU Revenues or (ii) EU Operating Profit.’

10 By letter of 31 October 2003, drafted by another tax adviser, Amazon.com requested confirmation of the tax treatment of LuxSCS, of its partners established in the United States and of the dividends received by LuxOpCo as part of that structure. The letter explained that LuxSCS, as a ‘Société en Commandite Simple’, did not have a separate tax personality from that of its partners and that, as a result, it was not subject to corporate income tax or net wealth tax in Luxembourg.

11 On 6 November 2003, the Administration des contributions directes du Grand-Duché de Luxembourg (‘the Luxembourg tax administration’ or ‘the Luxembourg tax authorities’) sent Amazon.com a letter (‘the tax ruling at issue’) which reads, in part, as follows: ‘Sir, After having made myself acquainted with the letter of [O]ctober 31, 2003, directed to me by [your tax advisor] just as with your letter of [O]ctob[er] 23, 2003 and dealing with your position regarding Luxembourg tax treatment within the framework of your future activities, I am pleased to inform you that I may approve the contents of the two letters. …’

12 At the request of Amazon.com, the Luxembourg tax administration extended the validity of the tax ruling at issue in 2010 and effectively applied it until June 2014, when the European structure of the Amazon group was modified. Thus, the tax ruling at issue was applied from 2006 to 2014 (‘the relevant period’).

B. The administrative procedure before the Commission

13 On 24 June 2014, the European Commission requested that the Grand Duchy of Luxembourg provide information on the tax rulings granted to the Amazon group. On 7 October 2014, it published the decision to initiate a formal investigation procedure under Article 108(2) TFEU.

14 During the investigation thus initiated, the Commission requested a variety of information from the Grand Duchy of Luxembourg and Amazon.com. Among the responses to those requests for information, Amazon.com submitted a copy of an opinion of the United States Tax Court of 23 March 2017 (‘the opinion of the United States Tax Court’) which had been delivered on an application brought by the Internal Revenue Service (the United States federal government tax collection agency; IRS) concerning the amount of payments related to the agreements referred to in paragraph 4 above.

15 In addition, Amazon.com submitted to the Commission a new transfer pricing report drawn up by a tax adviser, the purpose of which was to verify ex post whether the royalty paid by LuxOpCo to LuxSCS in accordance with the tax ruling at issue complied with the arm’s length principle (‘the 2017 transfer pricing report’).

C. The contested decision

16 On 4 October 2017, the Commission adopted Decision (EU) 2018/859 on State aid SA.38944 (2014/C) (ex 2014/NN) implemented by Luxembourg to Amazon (OJ 2018 L 153, p. 1; ‘the contested decision’).

17 Article 1 of that decision reads, in part, as follows:

18 ‘The [tax ruling at issue], by virtue of which Luxembourg endorsed a transfer pricing arrangement … that allowed [LuxOpCo] to assess its corporate income tax liability in Luxembourg from 2006 to 2014 and the subsequent acceptance of the yearly corporate income tax declaration based thereon constitutes [State] aid …’

1. Presentation of the factual and legal context

19 In Section 2 of the contested decision, entitled ‘Factual and Legal Background’, the Commission presents, inter alia, the Amazon group, the tax ruling at issue, the relevant national legal framework and guidance on transfer pricing.

(a) Presentation of the Amazon group

20 As regards the presentation of the Amazon group, the Commission described the Amazon group’s retail and service businesses, as well as the composition of that group in so far as that was relevant to the contested decision.

21 The European structure of the Amazon group during the relevant period was presented by the Commission in the following schematic form:

22 First, with regard to LuxSCS, the Commission pointed out that that company did not have any physical presence or employees in Luxembourg. According to the Commission, during the relevant period, LuxSCS functioned solely as an intangible assets holding company for the Amazon group’s European operations, for which LuxOpCo was responsible as the principal operator. It stated, however, that LuxSCS had also granted intra-group loans to several entities in the Amazon group. The Commission also noted that LuxSCS was a party to several intra-group agreements with ATI, A9 and LuxOpCo (see paragraphs 3 and 5 above).

23 Secondly, as regards LuxOpCo, the Commission placed particular emphasis on the fact that, during the relevant period, LuxOpCo was a wholly owned subsidiary of LuxSCS.

24 According to the Commission, as from the 2006 restructuring of the Amazon group’s European operations, LuxOpCo functioned as the Amazon group’s headquarters in Europe and the principal operator of the Amazon group’s European online retail and service business as carried out through the EU websites. The Commission stated that, in that capacity, LuxOpCo had to manage decision-making related to the retail and service businesses carried out through the EU websites, along with managing key physical components of the retail business. In addition, as the seller of record of the Amazon group’s inventory in Europe, LuxOpCo was also responsible for managing inventory on the EU websites. It held title to that inventory and bore the risks and losses. The Commission further stated that LuxOpCo had recorded revenue in its accounts both from product sales and from order fulfilment. Lastly, LuxOpCo also performed treasury management functions for the Amazon group’s European operations.

25 Next, the Commission indicated that LuxOpCo had held shares in Amazon Services Europe (‘ASE’) and Amazon Media Europe (‘AMEU’), two Amazon group entities resident in Luxembourg, and also in the subsidiaries of Amazon.com established in the United Kingdom, France and Germany (‘the EU local affiliates’), which performed various intra-group services in support of LuxOpCo’s business. During the relevant period, ASE operated the Amazon group’s EU third-party seller business,‘Marketplace’. AMEU operated the Amazon group’s EU digital business, such as, for example, the sale of MP3s and eBooks. The EU local affiliates supplied services relating to the operation of the EU websites.

26 The Commission added that, during the relevant period, ASE and AMEU, both Luxembourg resident companies, formed a fiscal unity with LuxOpCo for Luxembourg tax purposes in which LuxOpCo operated as the parent of the unity. Those three entities therefore constituted a single taxpayer.

27 Lastly, in addition to the Licence Agreement concluded between LuxOpCo and LuxSCS, the Commission described in detail certain other intra-group agreements to which LuxOpCo was a party during the relevant period, namely certain service agreements concluded on 1 May 2006 with the EU local affiliates and intellectual property licence agreements concluded on 30 April 2006 with ASE and AMEU, under which ASE and AMEU were granted non-exclusive sub-licences to the intangible assets.

(b) Presentation of the tax ruling at issue

28 Having examined the structure of the Amazon group, the Commission describes the tax ruling at issue.

29 In that regard, first, it referred to the letters of 23 and 31 October 2003, mentioned in paragraphs 8 to 10 above.

30 Secondly, the Commission explained the content of the 2003 transfer pricing report on the basis of which the method for establishing the royalty was proposed.

31 The Commission began by indicating that the 2003 transfer pricing report provided a functional analysis of LuxSCS and LuxOpCo, according to which LuxSCS’s principal activities were limited to those of an intangible assets holding company and a participant in the ongoing development of the intangible assets through the CSA. LuxOpCo was described in that report as managing strategic decision-making related to the EU websites’ retail and service businesses, and also managing the key physical components of the retail business.

32 Next, the Commission stated that the 2003 transfer pricing report contained a section dealing with the selection of the most appropriate transfer pricing method for determining whether the royalty rate complied with the arm’s length principle. Two methods were considered in the report: one based on the comparable uncontrolled price method (‘the CUP method’) and another based on the residual profit split method.

33 Applying the CUP method, the 2003 transfer pricing report calculated an arm’s length range for the royalty rate of 10.6 to 13.6% on the basis of a comparison with an agreement between Amazon.com and a retailer in the United States, namely the [confidential] agreement.

34 Applying the residual profit split method, the 2003 transfer pricing report estimated the return associated with LuxOpCo’s ‘routine functions in its role as the European operating company’ based on a mark-up on costs to be incurred by LuxOpCo. To that end, the ‘net cost plus mark-up’ was considered the profit level indicator for the purpose of determining the arm’s length remuneration for the anticipated functions of LuxOpCo. It was proposed that a mark-up of [confidential] be applied to LuxOpCo’s adjusted operating costs. The Commission observed that, according to the 2003 transfer pricing report, the difference between that return and LuxOpCo’s operating profit constituted the residual profit, which was wholly attributable to the use of the intangible assets licensed from LuxSCS. The Commission also stated that, on the basis of that calculation, the authors of the 2003 transfer pricing report had concluded that a royalty rate in a range of 10.1% to 12.3% of LuxOpCo’s net revenues would be consistent with the arm’s length standard under the guidelines of the Organisation for Economic Cooperation and Development (OECD).

35 Lastly, the Commission stated that the authors of the 2003 transfer pricing report had considered that the results converged and had indicated that the arm’s length range for the royalty rate from LuxOpCo to LuxSCS was 10.1% to 12.3% of LuxOpCo’s sales. However, the authors of the 2003 transfer pricing report considered that the residual profit split analysis was more reliable and should therefore be selected.

36 Thirdly, in Section 2.2.5 of the contested decision, entitled ‘Consequences of the contested tax ruling’, the Commission stated that, by the tax ruling at issue, the Luxembourg tax administration had accepted that the arrangement for determining the level of the royalty, which in turn had determined LuxOpCo’s annual taxable income in Luxembourg, was at arm’s length. It added that the tax ruling at issue was relied upon by LuxOpCo when filing its annual tax declarations.

(c) Description of the relevant national legal framework

37 As regards the relevant national legal framework, the Commission cited Article 164(3) of the LIR. According to that provision, ‘taxable income comprises hidden profit distributions’ and ‘a hidden profit distribution arises in particular when a shareholder, a stockholder or an interested party receives either directly or indirectly benefits from a company or an association which he normally would not have received if he had not been a shareholder, a stockholder or an interested party’. In that context, the Commission explained, in particular, that, during the relevant period, Article 164(3) of the LIR was interpreted by the Luxembourg tax administration as enshrining the arm’s length principle in Luxembourg tax law.

(d) Presentation of the OECD transfer pricing framework

38 In recitals 244 to 249 of the contested decision, the Commission presented the OECD transfer pricing framework. According to the Commission, ‘transfer prices’, as understood by the OECD in the guidelines published by that organisation in 1995, 2010 and 2017, are the prices at which a company transfers physical goods or intangible property or provides services to its associated companies. According to the arm’s length principle, as applied in corporate taxation, national tax administrations should only accept the transfer prices agreed between associated group companies for intra-group transactions if those prices reflect what would have been agreed in uncontrolled transactions, that is to say, transactions between independent companies negotiating under comparable circumstances on the market. In addition, the Commission stated that the arm’s length principle is based on the separate entity approach, according to which the members of a corporate group are treated as separate entities for tax purposes.

39 The Commission also indicated that the 1995, 2010 and 2017 OECD Guidelines list five methods for establishing arm’s length pricing for intra-group transactions. Only three of them were relevant for the contested decision, namely the CUP method, the transactional net margin method (‘the TNMM’) and the transactional profit split method. The Commission described those methods in recitals 250 to 256 of the contested decision.

2. Assessment of the tax ruling at issue

40 In recital 154 of the contested decision, the Commission indicated that the tax ruling at issue accepted that the transfer pricing arrangement for the purposes of determining the level of the annual royalty to be paid by LuxOpCo to LuxSCS under the Licence Agreement, which in turn determined LuxOpCo’s annual taxable income in Luxembourg, was at arm’s length. In recital 155 of the contested decision, it also stated that LuxOpCo had relied on the tax ruling at issue during the relevant period to determine its annual corporate income tax liability in Luxembourg for the purpose of filing its annual tax declarations. As is clear from Article 1 of the contested decision and despite some imprecision in recitals 605 and 606 of that decision, according to the Commission, the State aid therefore consisted, in the present case, of the tax ruling at issue read in conjunction with the acceptance of LuxOpCo’s annual tax declarations (as opposed to the tax ruling at issue as such).

41 Section 9 of the contested decision, entitled ‘Assessment of the contested measure’, was intended to demonstrate that the tax ruling in question and the acceptance of LuxOpCo’s annual tax declarations, taken together, did indeed constitute State aid.

42 In order to do so, after noting the conditions for the existence of State aid laid down in Article 107(1) TFEU, the Commission stated that the first condition for the existence of State aid, namely that there must be an intervention by the State or through State resources, was satisfied in the present case. In that respect, it noted, first, that the tax ruling at issue was imputable to the Grand Duchy of Luxembourg. Secondly, it considered that the tax ruling at issue resulted in a lowering of LuxOpCo’s tax liability in Luxembourg as compared to the tax paid by similarly situated corporate taxpayers. The tax ruling at issue therefore gave rise to loss of State resources, since it led the Grand Duchy of Luxembourg to waive tax revenue that it would otherwise have been entitled to collect from LuxOpCo.

43 As regards the second and fourth conditions for the existence of State aid, the Commission considered, first, that tax ruling at issue had to be regarded as affecting intra-EU trade, since LuxOpCo was part of the Amazon group operating in several Member States and it had carried out retail business through the EU websites. The Commission added that, by granting ‘favourable tax treatment to Amazon’, the Grand Duchy of Luxembourg had potentially drawn investments away from Member States which did not offer such favourable tax treatment to companies forming part of multinational group. Secondly, the Commission indicated that, in so far as the tax ruling at issue had relieved LuxOpCo of corporate income taxes that it would normally have been obliged to pay, that ruling constituted operating aid. Thus, the tax ruling at issue, by freeing up financial resources for LuxOpCo which the latter could use to invest in its business operations, distorted competition on the market.

44 As regards the third condition for the existence of State aid, the Commission explained that, where a tax ruling endorses a result that does not reflect in a reliable manner what would result from a normal application of the ordinary tax system, without justification, that ruling will confer a selective advantage on its addressee in so far as that selective treatment results in a lowering of that taxpayer’s tax liability as compared to companies in a similar factual and legal situation. The Commission also considered that, in the present case, the tax ruling at issue had conferred a selective advantage on LuxOpCo by lowering its corporate income tax liability in Luxembourg.

(a) Analysis of the existence of an advantage

45 In Section 9.2 of the contested decision, entitled ‘Advantage’, the Commission discussed the reasons it considered that the tax ruling at issue conferred an economic advantage on LuxOpCo.

46 As a preliminary point, the Commission stated that, in respect of tax measures, an advantage for the purposes of Article 107 TFEU may be granted by reducing an undertaking’s taxable base or the amount of tax due from it. In recital 402 of the contested decision, it noted that, according to the Court of Justice, in order to decide whether a method of assessment of taxable income confers an advantage on its beneficiary, it is necessary to compare that method with the ordinary tax system, based on the difference between profits and outgoings of an undertaking carrying on its activities in conditions of free competition. Consequently, according to the Commission, ‘a tax ruling that enables a taxpayer to employ transfer prices in its intra-group transactions that do not resemble prices which would be charged in conditions of free competition between independent undertakings negotiating under comparable circumstances at arm’s length confers an advantage on that taxpayer, in so far as it results in a reduction of the company’s taxable income and thus its taxable base under the ordinary corporate income tax system’.

47 In the light of those considerations, the Commission concluded, in recital 406 of the contested decision, that, in order to establish that the tax ruling at issue confers an economic advantage on LuxOpCo, it had to demonstrate that the transfer pricing arrangement endorsed in the tax ruling at issue produced an outcome that departed from a reliable approximation of a market-based outcome, resulting in a reduction of LuxOpCo’s taxable basis for corporate income tax purposes. According to the Commission, the tax ruling at issue had produced such an outcome.

48 That conclusion is based on a primary finding and three subsidiary findings.

(1) The primary finding of an advantage

49 In Section 9.2.1 of the contested decision, entitled ‘Primary finding of an economic advantage’, the Commission considered that, by endorsing a transfer pricing arrangement that attributed a remuneration to LuxOpCo solely for ‘routine’ functions and that attributed the entire profit generated by LuxOpCo in excess of that remuneration to LuxSCS in the form of a royalty payment, the tax ruling at issue had produced an outcome that departed from a reliable approximation of a market-based outcome.

50 In essence, by its primary line of reasoning, the Commission considered that the functional analysis of LuxOpCo and LuxSCS set out by the authors of the 2003 transfer pricing report and ultimately accepted by the Luxembourg tax administration was incorrect and could not result in an arm’s length outcome. On the contrary, the Luxembourg tax administration should have concluded that LuxSCS did not perform any ‘unique and valuable’ functions in relation to the intangible assets for which it merely held the legal title.

51 For the purposes of its demonstration, the Commission examined the functions performed, the assets used and the risks borne by LuxSCS and LuxOpCo.

52 Next, as is apparent from recital 519 of the contested decision, on the basis of its functional analysis of LuxOpCo and LuxSCS, the Commission examined the choice of the most appropriate transfer pricing method in this case.

53 As regards the CUP method, the Commission considered, following an analysis based on five comparability criteria set out in the OECD Guidelines, that the application of that method, as set out in the 2003 transfer pricing report, had produced an exaggerated result which had exposed LuxOpCo to the risk of incurring losses.

54 According to the Commission, in the present case, the TNMM was the most appropriate transfer pricing method to determine the royalty to be paid by LuxOpCo under the Licence Agreement. It considered that the party performing unique and valuable functions was LuxOpCo and not LuxSCS. Consequently, the tested party for the purpose of applying the TNMM should have been LuxSCS rather than LuxOpCo.

55 Lastly, in Section 9.2.1.4 of the contested decision, the Commission carried out its own application of the TNMM in this case.

56 In its view, LuxSCS should have been the tested entity. The Luxembourg tax administration should not have accepted Amazon.com’s claim that the mere legal ownership of the intangible assets constituted a ‘unique contribution’ for which LuxSCS should receive a remuneration consisting of almost all profits derived from LuxOpCo’s business activities. In that regard, the Commission referred, inter alia, to its own functional analysis of LuxSCS and LuxOpCo (Section 9.2.1. of the contested decision).

57 As regards the choice of profit level indicator, the Commission considered that, since LuxSCS did not record any sales or assume any risk in connection with the intangible assets, the relevant profit level indicator should have been a mark-up on total relevant costs (recital 550 of the contested decision).

58 As regards the cost base to which a mark-up should be applied in the present case, the Commission considered in essence that LuxSCS merely fulfilled an intermediary function, passing on the costs incurred in relation to the Buy-In Agreement and the CSA to LuxOpCo and transferring a portion of the royalty payments (the Licence Fee) it received from LuxOpCo under the Licence Agreement to A9 and ATI in the amount of those costs (recital 551 of the contested decision).

59 In the light of those findings, in recital 555 of the contested decision, the Commission concluded that LuxSCS’s remuneration should have had two components. The first component should, according to the Commission, have corresponded to the re-charging to LuxOpCo of the costs related to the Buy-In Agreement and the CSA, to which no mark-up should have been applied. The second component should have consisted, according to the Commission, of a mark-up on a cost base consisting solely of the costs incurred for the external services acquired in order to maintain its legal ownership of the intangible assets, to the extent that those costs actually represented actual functions carried out by LuxSCS. According to the Commission, that level of remuneration would have ensured an outcome in line with the arm’s length principle since it would have appropriately reflected LuxSCS’s contributions to the Licence Agreement.

60 As regards the determination of an appropriate mark-up, the Commission noted that, although such an exercise normally required a comparability analysis, it was not possible in the present case to perform a reliable analysis.

61 Instead of a comparability analysis, the Commission considered that it could rely on the conclusions in the 2010 report of the Joint Transfer Pricing Forum (‘the JTPF report’). The Joint Transfer Pricing Forum is a group of experts formed by the Commission in 2002 in order to assist the Commission on transfer pricing matters. According to that report, a mark-up for ‘low value adding intra-group services’ in the range of 3 to 10% was observed by the national tax administrations of the Member States participating in the Joint Transfer Pricing Forum. The mark-up most often observed in practice was 5% on the costs of ‘providing such services’. The Commission therefore considered it appropriate to apply such a mark-up to the external costs incurred by LuxSCS for the maintenance of its legal ownership of the intangible assets.

62 In concluding its primary finding of an economic advantage for the purpose of Article 107(1) TFEU, the Commission indicated that an ‘arm’s length remuneration’ for LuxSCS under the Licence Agreement should have been equal to the sum of the Buy-In and CSA costs incurred by LuxSCS, without a mark-up, plus any relevant costs incurred directly by LuxSCS, to which a mark-up of 5% had to be applied, to the extent that those costs reflected actual functions performed by LuxSCS. In the Commission’s view, that remuneration reflected what an independent party in a position similar to that of LuxOpCo would have been willing to pay for the rights and obligations assumed under the Licence Agreement. In addition, according to the Commission, that level of remuneration would have been sufficient to enable LuxSCS to cover its payment obligations under the Buy-In Agreement and the CSA (recitals 559 and 560 of the contested decision).

63 According to the Commission, since the level of LuxSCS’s remuneration calculated by the Commission was lower than the level of LuxSCS’s remuneration resulting from the transfer pricing arrangement endorsed by the tax ruling at issue, that ruling conferred an advantage on LuxOpCo in the form of a reduction of its taxable base for the purposes of Luxembourg corporate income tax as compared to the income of companies whose taxable profit reflected prices negotiated at arm’s length on the market (recital 561 of the contested decision).

(2) The subsidiary findings of an advantage

64 In Section 9.2.2 of the contested decision, entitled ‘Subsidiary finding of an economic advantage’, the Commission sets out its subsidiary finding of an advantage, according to which, even if the Luxembourg tax administration were right to have accepted the analysis of LuxSCS’s functions set out in the 2003 transfer pricing report, the transfer pricing arrangement endorsed by the tax ruling at issue was, in any event, based on inappropriate methodological choices that produced an outcome which departed from a reliable approximation of a market-based outcome. The Commission specified that the purpose of its assessment in Section 9.2.2 of the contested decision was not to determine a precise arm’s length remuneration for LuxOpCo but rather to demonstrate that the tax ruling at issue had conferred an economic advantage, since the endorsed transfer pricing arrangement was based on three inappropriate methodological choices which resulted in a lowering of LuxOpCo’s taxable income as compared to companies whose taxable profit reflected prices negotiated at arm’s length on the market.

65 In that context, the Commission made three separate subsidiary findings.

66 In its first subsidiary finding, the Commission stated that LuxOpCo had been inaccurately considered to perform only ‘routine’ management functions and that the profit split method, together with the contribution analysis, should have been applied.

67 In its second subsidiary finding, the Commission found that the choice of operating expenses as a profit level indicator was incorrect.

68 In its third subsidiary finding concerning the advantage, the Commission considered that the inclusion of a ceiling of 0.55% of EU turnover was not appropriate.

(b) Selectivity of the measure

69 In Section 9.3 of the contested decision, entitled ‘Selectivity’, the Commission set out the reasons why it considered that the measure at issue was selective.

(c) Identification of the beneficiary of the aid

70 In Section 9.5 of the contested decision, entitled ‘Beneficiary of the aid’, the Commission considered that any favourable tax treatment granted to LuxOpCo had also benefited the Amazon group as a whole by providing it with additional resources, with the result that the group had to be regarded as a single unit benefiting from the contested aid measure.

71 In Section 10 of the contested decision, entitled ‘Recovery’, the Commission stated that, since the aid measure was granted every year in which LuxOpCo’s annual tax declaration was accepted by the Luxembourg tax administration, the Amazon group could not object to the recovery of that aid on the basis of the limitation period. In recitals 639 to 645 of the contested decision, the Commission set out the methodology for recovery.

II. Procedure and forms of order sought

A. The procedure in Case T‑816/17

72 By application lodged at the Registry of the General Court on 14 December 2017, the Grand Duchy of Luxembourg brought the action in Case T‑816/17.

1. The composition of the formation of the Court and priority treatment

73 By decision of 12 April 2018, the President of the Seventh Chamber of the General Court decided to grant Case T‑816/17 priority over others pursuant to Article 67(2) of the Rules of Procedure of the General Court.

74 By a document lodged at the Court Registry on 11 May 2018, the Grand Duchy of Luxembourg requested that Case T‑816/17 be heard and determined by the Seventh Chamber of the General Court, sitting in extended composition.

75 In accordance with Article 28(5) of the Rules of Procedure, Case T‑816/17 was allocated to the Seventh Chamber (Extended Composition).

76 Since a member of the Seventh Chamber (Extended Composition) of the General Court was unable to sit in the present case, the President of the General Court, by decision of 21 June 2018, designated the Vice-President of the General Court to complete the formation of the Court. Following the appointment of a member of the formation of the Court as a judge at the Court of Justice on 6 October 2020, the most junior Judge for the purpose of Article 8 of the Rules of Procedure abstained from taking part in the deliberations and the present judgment was deliberated by the three judges whose signatures it bears, in accordance with Article 22 of those rules.

2. The intervention

77 By a document lodged at the Court Registry on 16 April 2018, Ireland sought leave to intervene in Case T‑816/17 in support of the form of order sought by the Grand Duchy of Luxembourg.

78 By order of 29 May 2018, the President of the Seventh Chamber (Extended Composition) granted Ireland leave to intervene.

3. Applications for confidential treatment

79 By a document lodged at the Court Registry on 14 May 2018, the Grand Duchy of Luxembourg requested that certain data in its application, in some of the annexes thereto and in the defence be treated as confidential vis-à-vis Ireland.

80 By a document lodged at the Court Registry on 6 June 2018, the Grand Duchy of Luxembourg requested that part of the reply be treated as confidential vis-à-vis Ireland.

81 By a document lodged at the Court Registry on 13 September 2018, the Grand Duchy of Luxembourg requested that part of the rejoinder be treated as confidential vis-à-vis Ireland.

82 Following its admission as an intervener, Ireland received only non-confidential versions of the procedural documents covered by the requests for confidential treatment made in its regard by the Grand Duchy of Luxembourg and raised no objection to those requests.

4. Forms of order sought

83 The Grand Duchy of Luxembourg claims that the Court should: – annul the contested decision; – in the alternative, annul the contested decision to the extent that it orders the recovery of the aid; – order the Commission to pay the costs.

84 The Commission contends that the Court should: – dismiss the action as unfounded; – order the Grand Duchy of Luxembourg to pay the costs.

85 Ireland claims that the Court should annul the contested decision, in whole or in part, as specified in the form of order sought by the Grand Duchy of Luxembourg.

B. The procedure in Case T‑318/18

86 By application lodged at the Court Registry on 22 May 2018, Amazon EU Sàrl and Amazon.com (together ‘Amazon’) brought the action in Case T‑318/18.

1. The composition of the formation of the Court and priority treatment

87 By decision of 9 July 2018, the President of the Seventh Chamber of the General Court decided to grant Case T‑318/18 priority over others pursuant to Article 67(2) of the Rules of Procedure.

88 On a proposal from the Seventh Chamber of the General Court, the Court decided on 11 July 2018, pursuant to Article 28 of the Rules of Procedure, to refer Case T‑318/18 to a Chamber sitting in extended composition.

89 As a Member of the Seventh Chamber (Extended Composition) was unable to sit in the present case, by decision of 19 July 2018, the President of the General Court designated the Vice-President of the General Court to complete the formation of the Court. Following the appointment of a member of the formation of the Court as a judge at the Court of Justice on 6 October 2020, the most junior Judge for the purpose of Article 8 of the Rules of Procedure abstained from taking part in the deliberations and the present judgment was deliberated by the three judges whose signatures it bears, in accordance with Article 22 of those rules.

2. Applications for confidential treatment

90 By a document lodged at the Court Registry on 12 July 2018, Amazon requested that part of the application and certain documents annexed thereto be treated as confidential vis-à-vis the public.

3. Forms of order sought

91 Amazon claims that the Court should: – annul Articles 1 to 4 of the contested decision; – in the alternative, annul Articles 2 to 4 of the contested decision; – order the Commission to pay the costs.

92 The Commission contends that the Court should: – dismiss the action; – order Amazon to pay the costs in Case T‑318/18.

C. Joinder of the cases and the oral part of the procedure

93 By documents lodged at the Court Registry on 7 August 2018 and 25 April 2019, the Grand Duchy of Luxembourg applied for Cases T‑816/17 and T‑318/18 to be joined for the purposes of the oral part of the procedure and of the decision closing the proceedings.

94 By documents lodged at the Registry on 10 August 2018 and 21 May 2019, Amazon applied for Cases T‑816/17 and T‑318/18 to be joined for the purposes of the oral part of the procedure and of the decision closing the proceedings.

95 By decision of 14 September 2018, the President of the Seventh Chamber (Extended Composition) of the General Court decided not to join, at that stage of the procedure, Cases T‑816/17 and T‑318/18.

96 By order of 3 October 2019, the President of the Seventh Chamber (Extended Composition) of the General Court decided to join Cases T‑816/17 and T‑318/18 for the purposes of the oral part of the procedure.

97 Acting on a proposal from the Judge-Rapporteur, the Court decided to open the oral part of the procedure and, in connection with the measures of organisation of procedure provided for in Article 89 of the Rules of Procedure, requested the parties to answer written questions. The parties responded to that measure of organisation of procedure within the prescribed period.

98 The parties presented oral argument and responded to the oral questions put by the Court at the hearing held on 5 and 6 March 2020. The parties also presented their views regarding a possible joinder of Cases T‑816/17 and T‑318/18 for the purposes of the decision closing the proceedings, a formal note of which was made by the Court in the minutes of the hearing. The Grand Duchy of Luxembourg, Amazon and Ireland stated that they had no objections to such joinder. The Commission stated that it was not in favour of any joinder of the cases for the purposes of the decision closing the proceedings.

III. Law

99 The actions brought in Cases T‑816/17 and T‑318/18 seek the annulment of the contested decision to the extent that it classifies the tax ruling at issue as State aid for the purposes of Article 107(1) TFEU and to the extent that it orders the recovery of sums that were not collected by the Grand Duchy of Luxembourg from LuxOpCo by way of corporate income tax.

A. Joinder of Cases T‑816/17 and T‑318/18 for the purposes of the decision closing the proceedings

100 In accordance with Article 19(2) of Rules of Procedure, the President of the Seventh Chamber (Extended Composition) of the General Court referred the decision as to whether Cases T‑816/17 and T‑318/18 should be joined for the purposes of the decision closing the proceedings, which fell within his remit, to the Seventh Chamber (Extended Composition) of the General Court.

101 The parties having been heard at the hearing with respect to a possible joinder of the cases, it is appropriate for Cases T‑816/17 and T‑318/18 to be joined for the purposes of the decision which closes the proceedings, on account of the connection between them.

B. Pleas in law and arguments relied on

102 In support of their actions, the Grand Duchy of Luxembourg and Amazon raise five and nine pleas, respectively, most of which overlap. In its statement in intervention, Ireland sets out its views on four of the five pleas raised by the Grand Duchy of Luxembourg. In essence, the pleas raised by the Grand Duchy of Luxembourg and by Amazon may be presented as follows.

103 In the first place, in the first plea in Case T‑816/17 and in the first to fourth pleas in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon dispute, in essence, the Commission’s primary finding that there was an advantage in favour of LuxOpCo for the purpose of Article 107(1) TFEU.

104 In the second place, in the third complaint in the second part of the first plea in Case T‑816/17 and in the fifth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon dispute the Commission’s subsidiary findings concerning the existence of a tax advantage in favour of LuxOpCo within the meaning of Article 107(1) TFEU.

105 In the third place, in the second plea in Case T‑816/17 and in the sixth and seventh pleas in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon dispute the Commission’s primary and subsidiary findings in respect of the selectivity of the tax ruling at issue.

106 In the fourth place, in the third plea in Case T‑816/17, the Grand Duchy of Luxembourg submits that the Commission infringed the Member States’ exclusive competence in the area of direct taxation.

107 In the fifth place, in the fourth plea in Case T‑816/17 and in the eighth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon maintain that the Commission infringed their rights of defence.

108 In the sixth place, in the second part of the first plea and the first complaint in the second part of the second plea in Case T‑816/17 and in the eighth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon dispute that the 2017 version of the OECD Guidelines, as used by the Commission in adopting the contested decision, is relevant in the present case.

109 In the seventh place, in the fifth plea, relied on in support of the form of order sought in the alternative in Case T‑816/17 and in the ninth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon call into question the merits of the Commission’s reasoning concerning the recovery of the aid ordered by that institution.

110 In its statement in intervention, Ireland alleges, first, infringement of Article 107 TFEU in that the Commission has not established the existence of an advantage in favour of LuxOpCo; secondly, infringement of Article 107 TFEU in that the Commission failed to prove the selectivity of the measure; thirdly, infringement of Articles 4 and 5 TEU in that the Commission engaged in disguised tax harmonisation; and, fourthly, infringement of the principle of legal certainty in so far as the contested decision orders recovery of the aid.

111 In order to give a useful response to the pleas put forward by the main parties and to the arguments raised by Ireland in its statement in intervention, it is necessary, first of all, to set out certain questions of law which are applicable to all the complaints and pleas in law relied on by the parties (paragraphs 112 to 129 below).

1. Preliminary remarks

112 According to settled case-law, while direct taxation, as EU law currently stands, falls within the competence of the Member States, they must nonetheless exercise that competence consistently with EU law (see judgment of 12 July 2012, Commission v Spain, C‑269/09, EU:C:2012:439, paragraph 47 and the case-law cited). Thus, intervention by the Member States in matters of direct taxation, even if it relates to issues that have not been harmonised in the European Union, is not excluded from the scope of the rules on the monitoring of State aid (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 142).

113 Accordingly, the Commission may classify a tax measure as State aid so long as the conditions for such a classification are satisfied (see, to that effect, judgments of 2 July 1974, Italy v Commission, 173/73, EU:C:1974:71, paragraph 28, and of 22 June 2006, Belgium and Forum 187 v Commission, C‑182/03 and C‑217/03, EU:C:2006:416, paragraph 81). Member States must exercise their competence in respect of taxation in accordance with EU law (judgment of 3 June 2010, Commission v Spain, C‑487/08, EU:C:2010:310, paragraph 37). Accordingly, they must refrain from adopting any measure, in that context, liable to constitute State aid incompatible with the internal market (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 143).

(a) Determination of the conditions for the application of Article 107(1) TFEU in the context of national tax measures

114 A measure by which the public authorities grant certain undertakings favourable tax treatment which, although not involving a transfer of State resources, places the recipients in a more favourable financial situation than that of other taxpayers constitutes State aid for the purposes of Article 107(1) TFEU (judgment of 15 March 1994, Banco Exterior de España, C‑387/92, EU:C:1994:100, paragraph 14; see also judgments of 8 September 2011, Paint Graphos and Others, C‑78/08 to C‑80/08, EU:C:2011:550, paragraph 46 and the case-law cited, and of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 145 and the case-law cited).

115 In the case of tax measures, the very existence of an advantage may be established only when compared with ‘normal’ taxation (judgment of 6 September 2006, Portugal v Commission, C‑88/03, EU:C:2006:511, paragraph 56). Accordingly, such a measure confers an economic advantage on its recipient if it mitigates the burdens normally included in the budget of an undertaking and, as a result, without being a subsidy in the strict meaning of the word, is similar in character and has the same effect (judgment of 9 October 2014, Ministerio de Defensa and Navantia, C‑522/13, EU:C:2014:2262, paragraph 22, and of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 146).

116 Consequently, in order to determine whether there is a tax advantage, the position of the recipient as a result of the application of the measure at issue must be compared with his or her position in the absence of the measure at issue (see, to that effect, judgment of 26 April 2018, Cellnex Telecom and Telecom Castilla-La Mancha v Commission, C‑91/17 P and C‑92/17 P, not published, EU:C:2018:284, paragraph 114), and under the normal rules of taxation (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 147).

117 In determining the fiscal position of an integrated company which is part of a group of undertakings, it must be noted at the outset that the pricing of intra-group transactions carried out by that company is not determined under market conditions. That pricing is agreed to by companies belonging to the same group, and is therefore not subject to market forces (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 148).

118 Where national tax law does not make a distinction between integrated undertakings and stand-alone undertakings for the purposes of their liability to corporate income tax, that law is intended to tax the profit arising from the economic activity of such an integrated undertaking as though it had arisen from transactions carried out at market prices. In those circumstances, it must be held that, when examining, pursuant to the power conferred on it by Article 107(1) TFEU, a fiscal measure granted to such an integrated company, the Commission may compare the fiscal burden of such an integrated undertaking resulting from the application of that fiscal measure with the fiscal burden resulting from the application of the normal rules of taxation under national law of an undertaking, placed in a comparable factual situation, carrying on its activities under market conditions (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 149).

119 Furthermore, those findings are supported by the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), concerning Belgian tax law, which provided for integrated companies and stand-alone companies to be treated on equal terms. The Court of Justice recognised in paragraph 95 of that judgment the need to compare a regime of derogating aid with the ‘ordinary tax system, based on the difference between profits and outgoings of an undertaking carrying on its activities in conditions of free competition’ (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 150).

120 In that context, although, through that fiscal measure granted to an integrated company, national authorities have accepted a certain level of pricing for an intra-group transaction, Article 107(1) TFEU allows the Commission to check whether that pricing corresponds to pricing under market conditions, in order to determine whether there is, as a result, any mitigation of the burdens normally included in the budget of the undertaking concerned, thus conferring on that undertaking an advantage within the meaning of that article.

121 It should also be noted that when the Commission uses the arm’s length principle to check whether the taxable profit of an integrated undertaking pursuant to a tax measure corresponds to a reliable approximation of a taxable profit generated under market conditions, the Commission can identify an advantage within the meaning of Article 107(1) TFEU only if the variation between the two comparables goes beyond the inaccuracies inherent in the methodology used to obtain that approximation (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 152).

122 Even though the Commission cannot be formally bound by the OECD Guidelines, the fact remains that those guidelines are based on important work carried out by groups of renowned experts, that they reflect the international consensus achieved with regard to transfer pricing and that they thus have a certain practical significance in the interpretation of issues relating to transfer pricing (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 155).

123 In that context, it should be noted that, if the Commission detects a methodological error in the tax measure under consideration, it cannot be concluded that mere non-compliance with methodological requirements necessarily leads to a reduction in the tax burden. It is further necessary for the Commission to demonstrate that the methodological errors that it identified in the tax ruling concerned do not allow a reliable approximation of an arm’s length outcome to be reached and that they led to a reduction in the taxable profit compared with the tax burden resulting from the application of normal taxation rules under national law to an undertaking placed in a comparable factual situation to the company concerned and carrying out its activities under market conditions. Thus, the mere finding of a methodological error does not in itself suffice, in principle, to demonstrate that a tax ruling conferred an advantage on a specific company and, thus, to establish that there is State aid within the meaning of Article 107 TFEU (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 201).

124 As the Grand Duchy of Luxembourg essentially submits, according to settled case-law, Article 107(1) TFEU defines a measure which reduces the burdens normally imposed on an undertaking in relation to its effects (see judgment of 22 December 2008, British Aggregates v Commission, C‑487/06 P, EU:C:2008:757, paragraph 85 and the case-law cited). The existence of State aid cannot be presumed or inferred from a calculation error which has no impact on the result.

(b) The burden of proof

125 It must be borne in mind that, in its review of State aid, the Commission must, in principle, provide proof in the contested decision of the existence of the aid (see, to that effect, judgments of 12 September 2007, Olympiaki Aeroporia Ypiresies v Commission, T‑68/03, EU:T:2007:253, paragraph 34, and of 25 June 2015, SACE and Sace BT v Commission, T‑305/13, EU:T:2015:435, paragraph 95). In that context, the Commission is required to conduct a diligent and impartial examination of the measures at issue, so that it has at its disposal, when adopting a final decision establishing the existence and, as the case may be, the incompatibility or unlawfulness of the aid, the most complete and reliable information possible (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 194; see also, to that effect, judgments of 2 September 2010, Commission v Scott, C‑290/07 P, EU:C:2010:480, paragraph 90, and of 3 April 2014, France v Commission, C‑559/12 P, EU:C:2014:217, paragraph 63).

126 It follows that it was for the Commission to show, in the contested decision, that the requirements for a finding of State aid, within the meaning of Article 107(1) TFEU, were met. In that regard, it must be held that, while it is common ground that the Member State has a margin of appreciation in the approval of transfer pricing, that margin of appreciation cannot lead to the Commission being deprived of its power to check that the transfer pricing in question does not lead to the grant of a selective advantage within the meaning of Article 107(1) TFEU. In that context, the Commission must take into account the fact that the arm’s length principle allows it to verify whether the transfer pricing accepted by a Member State corresponds to a reliable approximation of a market-based outcome and whether any variation that may be identified in the course of that examination does not go beyond the inaccuracies inherent in the methodology used to obtain that approximation (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 196).

(c) The intensity of the review to be conducted by the Court

127 With regard to the intensity of the review to be conducted by the Court in the present case, it should be noted that, as is clear from Article 263 TFEU, the object of an action for annulment is to review the legality of the acts adopted by the EU institutions named therein. Consequently, the analysis of the pleas in law raised in such an action has neither the object nor the effect of replacing a full investigation of the case in the context of an administrative procedure (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 197; see also, to that effect, judgment of 2 September 2010, Commission v Deutsche Post, C‑399/08 P, EU:C:2010:481, paragraph 84).

128 In the field of State aid, it must be recalled that State aid, as defined in the FEU Treaty, is a legal concept which must be interpreted on the basis of objective factors. For that reason, the Courts of the European Union must, in principle, having regard both to the specific features of the case before them and to the technical or complex nature of the Commission’s assessments, carry out a comprehensive review as to whether a measure falls within the scope of Article 107(1) TFEU (judgments of 4 September 2014, SNCM and France v Corsica Ferries France, C‑533/12 P and C‑536/12 P, EU:C:2014:2142, paragraph 15; of 30 November 2016, Commission v France and Orange, C‑486/15 P, EU:C:2016:912, paragraph 87; and of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 198).

129 As to whether a method for determining transfer pricing of an integrated company complies with the arm’s length principle, it should be borne in mind that, as has already been indicated above, when using that tool in carrying out its assessment under Article 107(1) TFEU, the Commission must take into account its approximate nature. The purpose of the Court’s review is therefore to verify whether the errors identified in the contested decision, and on the basis of which the Commission found there to be an advantage, go beyond the inaccuracies inherent in the application of a method designed to obtain a reliable approximation of a market-based outcome (judgment of 24 September 2019, Netherlands and Others v Commission, T‑760/15 and T‑636/16, EU:T:2019:669, paragraph 199).

2. Pleas and arguments challenging the primary finding of an advantage

130 As noted in paragraph 103 above, by the second part of the first plea in Case T‑816/17 and by the first to fourth pleas in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon submit that the Commission infringed Article 107(1) TFEU when it concluded that there was an advantage for LuxOpCo in the context of the primary finding of an advantage in Section 9.2.1 of the contested decision (recitals 409 to 561 of the contested decision). More specifically, by those pleas and arguments, the Grand Duchy of Luxembourg and Amazon seek to challenge the Commission’s reasoning in recitals 394, 395 and 401 to 579 of the contested decision, according to which the implementation of the tax ruling at issue during the relevant period led to a reduction in LuxOpCo’s remuneration, and thus in its tax burden, compared to that which it should have received in the absence of that decision, if it had been treated like any other taxpayer company in a comparable situation. By their arguments concerning the primary finding of an advantage, the Grand Duchy of Luxembourg and Amazon seek to call into question, inter alia, the Commission’s finding that LuxSCS should have been considered to be the tested party in the context of the application of the TNMM. They also seek to dispute the accuracy of the Commission’s application of the TNMM to LuxOpCo.

131 As pointed out in paragraph 110 above, in its statement in intervention, Ireland puts forward arguments in support of the first plea raised by the Grand Duchy of Luxembourg.

132 In that context, Ireland expresses its views on numerous questions of law concerning the interpretation of the concept of the ‘arm’s length principle’, as applied by the Commission in the present case and in certain recent State aid cases in tax matters. In particular, Ireland submits that the case-law of the EU judicature, namely the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), ‘does not say that the Member States are obliged to apply [the arm’s length principle]’. According to Ireland, that case-law also provides no basis for the obligation imposed on Luxembourg to apply (the Commission’s version of) the arm’s length principle in Luxembourg national law. Lastly, Ireland submits that, in the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416), the Court of Justice did not identify an arm’s length principle specific to EU law regardless of what is provided in national law.

(a) Admissibility of certain arguments put forward by Ireland concerning the existence of an advantage

133 The Commission contends that the arguments put forward by Ireland in support of the first plea raised by the Grand Duchy of Luxembourg are inadmissible. According to the Commission, Ireland’s arguments claim that the Commission misinterpreted the concept of advantage for the purpose of Article 107(1) TFEU by using an inappropriate criterion, namely a ‘sui generis’ arm’s length principle, whereas, in fact, by its first plea, the Grand Duchy of Luxembourg submits rather that the Commission misapplied the arm’s length principle.

134 In that respect, it should be noted that, although the third paragraph of Article 40 of the Statute of the Court of Justice of the European Union and Article 142(3) and Article 145(2)(b) of the Rules of Procedure of the General Court do not preclude an intervener from submitting arguments that are new or differ from those of the party he or she supports, as otherwise his or her intervention would be limited to restating the arguments put forward in the application, it cannot be held that those provisions allow him or her to alter or distort the context of the dispute defined by the application by raising new pleas in law (see judgment of 20 September 2019, Le Port de Bruxelles and Région de Bruxelles-Capitale v Commission, T‑674/17, not published, EU:T:2019:651, paragraph 44 and the case-law cited).

135 In other words, those provisions give the intervener the right to set out, independently, arguments as well as pleas, in so far as they support the form of order sought by one of the main parties and are not entirely unconnected with the issues underlying the dispute, as established by the applicant and defendant, which would result in a change in the subject matter of the dispute (see judgment of 20 September 2019, LePort de Bruxelles and Région de Bruxelles-Capitale v Commission, T‑674/17, not published, EU:T:2019:651, paragraph 45 and case-law cited).

136 In the present case, it should be noted that Ireland’s arguments concern, in essence, the legal basis relied on by the Commission as regards the obligation imposed on the Grand Duchy of Luxembourg to apply the arm’s length principle. Ireland therefore calls into question the sources of law of that principle, as applied by the Commission in the contested decision. In addition, Ireland’s arguments relate to the interpretation of the content of that principle and not to its application by means of a transfer pricing method.

137 It is common ground that the arm’s length principle, as applicable in the present case, may be inferred from Article 164(3) of the LIR. That is apparent, in particular, from recital 241 of the contested decision, and that conclusion has not been called into question by the parties. The first plea raised by the Grand Duchy of Luxembourg does not relate to the question of the source of law of that principle or to questions of interpretation of that principle. In fact, by its first plea, the Grand Duchy of Luxembourg alleges errors in the Commission’s application of certain methods for determining transfer pricing in its reasoning concerning the existence of an advantage, bearing in mind that those methods make it possible to determine, ultimately, whether a royalty corresponds to an arm’s length outcome.

138 It follows that the arguments put forward by Ireland in support of the first plea of the Grand Duchy of Luxembourg are not connected with the considerations on which its first plea is based. Accordingly, they must be rejected as inadmissible.

(b) The merits of the pleas in law and arguments of the Grand Duchy of Luxembourg and Amazon concerning the primary finding of an advantage

139 In addition to the matters set out in paragraph 130 above, it should be noted that, in the context of the first part of the first plea in Case T‑816/17 and the first plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon call into question the merits of the Commission’s refusal to apply the CUP method in the context of an ex post analysis carried out on the basis of comparable agreements submitted to the Commission by Amazon.com.

140 In the first and second complaints in the second part of the first plea in Case T‑816/17 and the second plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon submit that the functional analysis performed by the Commission as part of its application of the TNMM is incorrect in that it found that LuxSCS was the least complex party, and that the Commission’s application of the TNMM is based on incorrect methodological choices.

141 In the second part of the first plea in Case T‑816/17 and the third plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon maintain that, in its primary analysis, the Commission selected from among the testimony in the United States proceedings mentioned in paragraph 14 above in an arbitrary and biased fashion.

142 In the third part of the first plea in Case T‑816/17 and the sixth part of the second plea and the fourth plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon assert that the result obtained by the Commission in the contested decision deviates from a reliable approximation of an arm’s length outcome.

143 Thus, in essence, the arguments put forward by the Grand Duchy of Luxembourg and Amazon against the primary finding of an advantage seek to challenge, first, the Commission’s rejection of the use of the CUP method and, secondly, the Commission’s application of the TNMM.

144 As regards the arguments challenging the Commission’s rejection of the use of the CUP method, it should be noted that it is common ground that the tax ruling at issue did not apply that method. Even if that method was examined in the 2003 transfer pricing report, provided to the tax authorities in support of the request for a tax ruling, it was not used in the letter of 23 October 2003 by which Amazon sought approval of the method of calculating the royalty (see paragraph 9 above). As is apparent in particular from recital 542 of the contested decision, in its analysis aimed at demonstrating the existence of an advantage for the purpose of Article 107(1) TFEU, the Commission relied solely on the TNMM. However, the Commission’s assessments intended to rule out the applicability of the CUP method (recitals 521 to 538 of the contested decision) are not capable of demonstrating the existence of the first condition laid down in Article 107(1) TFEU. Given that it is for the Commission to demonstrate the existence of an advantage (see paragraphs 125 to 126 above) and in view of the fact that the Commission’s assessments intended to rule out the applicability of the CUP method do not allow such a demonstration, it is not useful to discuss the applicants’ arguments and pleas concerning the CUP method.

145 As regards the arguments challenging the merits of the Commission’s assessments concerning the application of the TNMM by that institution (see paragraphs 146 to 297 below), it will be necessary, first, to identify the relevant version of the OECD Guidelines on transfer pricing (see paragraphs 146 to 155 below). Secondly, it will be necessary to ascertain whether the Grand Duchy of Luxembourg and Amazon are entitled to claim that the Commission made errors when applying the TNMM in the contested decision, which invalidated its primary finding relating to the advantage (see paragraphs 156 to 297 below).

(1) Temporal relevance of certain OECD Guidelines used by the Commission for the purposes of applying the TNMM

146 In order to demonstrate the existence of an advantage, the Commission, in Section 9.2 of the contested decision, applied a series of OECD Guidelines on transfer pricing in different versions thereof.

147 In the first complaint in the second part of its second plea, the Grand Duchy of Luxembourg submits, in essence, that, in the present case, it is the economic context and regulatory framework prevailing in 2003 which must be taken into account. Leaving aside the fact that, at the time of the adoption of the tax ruling at issue, in 2003, as at the time of its last extension in 2010, the OECD Guidelines constituted merely indicative, non-binding guidance for the Luxembourg authorities, the only OECD guidelines available at the time of the adoption of the tax ruling were the 1995 OECD Guidelines. In the contested decision, the Commission referred, however, to the 2010 and 2017 versions of the OECD Guidelines, which amounts to an inappropriate application ratione temporis of the reference framework, which should be determined on the basis of the facts and the pricing methods which existed at the time of the adoption of the measures at issue.

148 Amazon adds that the 2010 and 2017 OECD Guidelines made several significant changes compared to their 1995 version, such as the introduction of the method for analysing the Development, Enhancement, Maintenance, Protection and Exploitation functions (‘the DEMPE functions’). Amazon disputes, in particular, the relevance of the Commission’s application of that method, since it did not appear until after the date of adoption of the tax ruling at issue, that is to say, in the 2017 version of the OECD Guidelines.

149 The Commission disputes those arguments.

150 It submits, first, that the contested decision does not apply the OECD Guidelines as if they constituted binding standards, but rather as a tool to assist it in applying the test laid down by the Court of Justice in paragraph 95 of the judgment of 22 June 2006, Belgium and Forum 187 v Commission (C‑182/03 and C‑217/03, EU:C:2006:416). According to the Commission, contrary to what the Grand Duchy of Luxembourg appears to argue, the Luxembourg tax administration regularly relied on those guidelines in interpreting the arm’s length principle, with the result that the OECD Guidelines remain relevant in the present case.

151 The Commission then adds that all the findings made in the contested decision are based on the 1995 OECD Guidelines and that the 2010 and 2017 OECD Guidelines are referred to only when those subsequent versions clarify the 1995 version of the Guidelines without, however, amending them.

152 In the present case, it is apparent from a number of footnotes to the contested decision that the Commission based, if only in part, its assessments relating to the existence of an advantage within the meaning of Article 107(1) TFEU not only on the 1995 version of the OECD Guidelines, but also on the 2010 and 2017 versions of those guidelines. It must be noted that the1995, 2010 and 2017 versions of the OECD Guidelines differ on several points, and to various extents. Those differences range from mere clarifications which have no impact on the substance of the earlier versions to entirely new elaborations, namely recommendations which were not contained, including implicitly, in the earlier versions. One of the entirely new elaborations of the OECD Guidelines which appeared only in the 2017 version is the DEMPE functional analysis method (see paragraph 148 above). In the context of the primary finding of an economic advantage, the Commission focused inter alia on that method of analysis.

153 In that respect, it should be borne in mind that, as is apparent from Article 1 and – implicitly – from inter alia recitals 394 and 620 of the contested decision, the measure at issue, as identified by the Commission, is the tax ruling at issue and the subsequent acceptance of LuxOpCo’s annual corporate income tax declarations based on that ruling. During the relevant period, LuxOpCo made its tax declarations on the basis of the method of calculation endorsed in the tax ruling at issue and that decision was extended in 2006 and in 2010.

154 In the light of those factors, it must be held that the Commission was entitled to base its findings concerning the existence of an advantage on the guidelines – which are, moreover, merely a non-binding tool – set out in the 1995 OECD Guidelines. However, in so far as the Commission relied on the 2010 version of the OECD Guidelines, that version is not relevant, unless it merely provides a useful clarification, without further elaboration, of the guidelines already set out in 1995. As for the 2017 version of the OECD Guidelines, since they were published after the relevant period and in so far as the recommendations contained therein have evolved significantly in relation to the 1995 version of the OECD Guidelines, those guidelines are not relevant in the present case.

155 In particular, the DEMPE functional analysis method cannot be regarded as relevant from a temporal point of view, in the present case, since it is a tool which was set out only in the 2017 version of the OECD Guidelines.

(2) Alleged errors committed by the Commission in the application of the TNMM in the contested decision

156 As noted in paragraph 9 above, the Grand Duchy of Luxembourg and Amazon dispute a whole series of assessments made by the Commission concerning the application of the TNMM in the context of the primary finding of an advantage.

157 It will be recalled that the TNMM is an indirect transfer pricing method. As described in paragraph 3.26 of the 1995 version of the OECD Guidelines, that method consists of determining, relative to an appropriate base, the net profit made by a taxpayer in a controlled transaction or controlled transactions which are closely linked or continuous. To determine that appropriate base, it is necessary to choose a profit level indicator, such as costs, sales or assets. The net profit indicator obtained by the taxpayer in a controlled transaction must be determined by reference to the net profit indicator earned by the same taxpayer or an independent undertaking in comparable uncontrolled transactions.

158 As is apparent from paragraph 3.26 of the 1995 version of the OECD Guidelines, the TNMM involves identifying a party to the transaction for which a profit level indicator is tested, for example a mark-up on costs. That party is referred to as the ‘tested party’. That is the party whose so-called ‘arm’s length’ mark-up must be determined. As a general rule, the tested party is the party to which a transfer pricing method can be applied in the most reliable manner and for which the most reliable comparables can be found.

159 The tested party is chosen on the basis of a functional analysis of the parties to the intra-group transaction. According to paragraph 3.43 of the 1995 version of the OECD Transfer Pricing Guidelines, the tested party will most often be the party which has the less complex functional analysis. According to an understanding already existing at the time when the 1995 Guidelines applied, the functional analysis usually involves examining the functions performed by an entity, the assets held and the risks borne.

160 In addition, it should be noted that the TNMM is considered to be an appropriate method for testing the arm’s length remuneration of a party which makes no unique or valuable contributions in connection with the transaction which is the subject of the transfer pricing analysis.

161 In the present case, the Grand Duchy of Luxembourg and Amazon do not dispute, as such, the Commission’s choice of the TNMM. They dispute only that the Commission applied that method correctly. First, the Grand Duchy of Luxembourg and Amazon challenge the Commission’s functional analysis and the choice of LuxSCS as the tested party for the purposes of applying the TNMM; secondly, the calculation of LuxSCS’s remuneration, namely the choice of profit level indicator and the mark-up rate used by the Commission in applying the TNMM; and, thirdly, the reliability of the result obtained.

(i) The functional analysis and the Commission’s choice of LuxSCS as the tested party

162 Recitals 409 to 561 of the contested decision, namely those relating to the primary finding of an advantage, seek to show, in essence, that, in the present case, the Luxembourg tax authorities should have applied the TNMM by using LuxSCS as tested party since it is, in the light of the functional analysis carried out by the Commission, the ‘least complex’ party. It is also apparent from those recitals that, according to the Commission, if the Luxembourg tax authorities had applied the TNMM by using LuxSCS as the tested party, LuxOpCo’s remuneration would have been higher than the remuneration determined pursuant to the tax ruling at issue. According to the Commission, consequently, the application of the TNMM by using LuxSCS as the tested party would have resulted in a lower royalty for LuxSCS and thus a higher remuneration for LuxOpCo.

163 In the second part of the first plea in Case T‑816/17 and the second plea in Case T‑318/18, the Grand Duchy of Luxembourg and Amazon dispute the Commission’s functional analysis. They claim, inter alia, that the functions performed by LuxSCS as well as the assets used and the risks assumed by it were minimised by the Commission. In their view, LuxSCS held the intangible assets and performed unique and valuable functions and could not, therefore, be used as the tested entity for the purposes of the Commission’s application of the TNMM.

164 In that context, it must be pointed out that, by their arguments concerning the primary finding of an advantage, the Grand Duchy of Luxembourg and Amazon do not call into question the merits of the Commission’s choice of the TNMM as being the appropriate method for assessing the arm’s length nature of the royalty. When calling into question the Commission’s findings concerning the functional analysis of LuxSCS in Section 9.2.1.1 of the contested decision, the Grand Duchy of Luxembourg and Amazon therefore seek, in essence, to challenge the Commission’s assertion that LuxSCS should have been regarded by the Luxembourg tax authorities as being the ‘least complex’ party and therefore the tested party in the context of the application of the TNMM.

165 In order to respond to those arguments of the Grand Duchy of Luxembourg and Amazon that the Commission was not entitled to conclude that the Luxembourg tax authorities should have applied the TNMM by using LuxSCS as the tested party, it is not necessary to verify the validity of the functional analysis of LuxOpCo. Since the Commission sought to apply the TNMM by using LuxSCS as the tested party, it is sufficient to verify the validity of the functional analysis of LuxSCS, as set out in Section 9.2.1.1 of the contested decision, and to ascertain whether, in the light of that analysis, it was possible to apply the TNMM to LuxSCS in a sufficiently reliable manner.

166 In that regard, it should be noted as a preliminary point that, according to paragraph 3.43 of the 1995 version of the OECD Guidelines, the party to which the TNMM is applied ‘should be the enterprise for which reliable data on the most closely comparable transactions can be identified’, that this ‘will often entail selecting the associated enterprise that is the least complex of the enterprises involved in the controlled transaction and that does not own valuable intangible property or unique assets’ and that, ‘however, the choice may be restricted by limited data availability’. According to that paragraph, in other words, although, as a general rule, the entity for which there is the most reliable evidence for the purposes of identifying comparables is often the ‘least complex’ entity, the purpose of the application of the TNMM is not necessarily to make that application dependent on the identification of the ‘least complex’ entity. Rather, what matters in the application of that method is, first, to have identified the party for which the most reliable data can be found and, secondly, whether the TNMM can be applied reliably to that party.

167 As a result of what has just been stated in paragraph 166 above, and as is apparent, in particular, from paragraphs 3.26, 3.28, 3.29, 3.34 and 3.43 of the 1995 version of the OECD Guidelines, the application of the TNMM necessarily entails finding reliable data for the comparison with the tested party. Thus, the entirety of the assessments concerning the functional analysis, the assessment of functions, the considerations relating to assets and risks borne, and all of the considerations concerning the ‘unique and valuable’ nature of the assets used, are merely criteria to be taken into account in the choice of the tested party in order to ensure a reliable result.

168 It is in the light of those considerations that the complaints challenging the functional analysis of LuxSCS carried out by the Commission and its conclusion that LuxSCS should have been the tested entity must be examined.

169 In that regard, it should be borne in mind that, in Section 9.2.1.1.1 of the contested decision (recitals 419 to 429 of that decision), the Commission described the functions performed by LuxSCS in the context of the controlled transaction.

170 In essence, as summarised in recital 418 of the contested decision, the Commission’s analysis is based on the following three main assertions. First, the Commission found that LuxSCS had not performed ‘active’ functions in connection with the development, enhancement, management and exploitation of the intangible assets, that it was not entitled to do so because of the exclusive licence granted to LuxOpCo, nor did it have the capacity to do so. Next, the Commission stated that, in its view, LuxSCS had not used assets in relation to those intangible assets, but had merely passively held legal ownership of the intangible assets and a licence to them under the CSA. Lastly, it noted that LuxSCS had neither assumed nor controlled the risks associated with those activities, nor did it have the operational and financial capacity to do so.

171 In recital 429 of the contested decision, the Commission concluded that, during the relevant period, the only functions that could actually be regarded as having been performed by LuxSCS were functions linked to the maintenance of its ‘legal ownership’ of the intangible assets, even though those functions were performed under LuxOpCo’s control. In fact, as is apparent from recitals 418 and 430 of the contested decision, LuxSCS merely held the intangible assets ‘passively’.

172 Next, in Section 9.2.1.1.2 of the contested decision, entitled ‘Assets used by LuxSCS’, and in particular in recital 430 of that decision, the Commission, in essence, again asserted that LuxSCS was merely the passive owner of the intangible assets. In recital 431 of the contested decision, the Commission disputed the argument that LuxSCS had used the intangible assets by licensing them to LuxOpCo. In recital 432 of the contested decision, it reiterated its view that, in any event, LuxSCS did not have the capacity actually to use the intangible assets.

173 Lastly, in Section 9.2.1.1.3 of the contested decision (recitals 436 to 446 of that decision), entitled ‘Risks assumed by LuxSCS’, the Commission analysed the risks borne by LuxSCS in so far as those risks were relevant in the context of the Licence Agreement. In recital 446 of that decision, it concluded in that regard that LuxSCS could not be regarded as having effectively assumed the risks associated with the development, enhancement, management and exploitation of Amazon’s intangible assets and that it did not have the financial capacity to assume such risks.

174 In addition, in Section 9.2.1.4.1 of the contested decision, entitled ‘The tested party should be LuxSCS’, the Commission stated, in essence, that it was necessary to avoid confusion between the complexity of the assets held and the complexity of the functions performed by the parties to the intra-group transaction concerned (recital 546 of the contested decision). Next, it asserted that there was no basis for the assumption that an associated group company that licenses an intangible asset to another company in the group performs more complex functions than the latter company merely because it legally owns a complex asset (recital 546 of the contested decision). Consequently, in its view, the Luxembourg tax administration should not have accepted Amazon’s claim that the mere legal ownership of the intangible assets was in itself a ‘unique contribution’. Rather, it should have required a functional analysis demonstrating that LuxSCS performed ‘unique and valuable functions’ (recital 547 of the contested decision). Lastly, according to the Commission, although LuxSCS was the legal owner of the intangible assets during the relevant period, the functional analysis carried out in Section 9.2.1.1 of the contested decision demonstrates that LuxSCS performed no ‘active’ or critical function in relation to the development, enhancement, maintenance or exploitation of those assets.

175 The Commission’s assessments relating to LuxSCS’s functions overlap to a large extent with those relating to the assets used by LuxSCS. That is also true of the arguments raised by the Grand Duchy of Luxembourg and Amazon challenging those assessments. It is therefore appropriate to examine those arguments together, and then examine those relating to the risks assumed by LuxSCS, in order to examine whether the Commission correctly considered that LuxSCS should be regarded as the tested entity.

– The functions and assets of LuxSCS

176 The Grand Duchy of Luxembourg and Amazon dispute the Commission’s assertions concerning LuxSCS’s functions. By contrast, as regards LuxSCS’s intangible assets, they agree that they were ‘unique and valuable’, without however taking care to define those terms.

177 First, the Grand Duchy of Luxembourg and Amazon criticise the Commission for failing to take account of the fact that the 1995 version of the OECD Guidelines stated that the party holding the intangible assets would typically not be the tested party for the application of the TNMM. In that regard, the Grand Duchy of Luxembourg and Amazon stress the fact that LuxSCS held unique and valuable intangible assets. They submit that the technology made available by LuxSCS played a central role in the development of the Amazon group’s business in Europe. Those intangible assets were essential for all of the Amazon group’s activities in Europe. In addition, the Grand Duchy of Luxembourg emphasises that, by licensing the intangible assets to LuxOpCo, LuxSCS enabled LuxOpCo to benefit from the development activities carried out by ATI and A9 in the United States and allowed it to make optimal use of those assets. Consequently, LuxOpCo had to remunerate LuxSCS not only for its contributions, but also indirectly the United States entities of the Amazon group for their contributions.

178 Secondly, the Grand Duchy of Luxembourg and Amazon dispute the Commission’s approach of distinguishing between ‘active’ and ‘passive’ functions and taking only the latter into account for the purposes of the functional analysis. In that context, they also criticise the Commission for not taking into account, in the analysis of functions, the fact that LuxSCS made the intangible assets available to LuxOpCo in the context of the controlled transaction. Amazon adds that making the intangible assets available by granting a licence to LuxOpCo constitutes an exploitation of those assets by LuxSCS, as envisaged by paragraph 6.32 of the 2017 version of the OECD Guidelines.

179 Thirdly, the Grand Duchy of Luxembourg and Amazon submit that LuxSCS performed unique and valuable functions, contrary to what is claimed by the Commission. In this context, they indicate in particular that, through its participation in the CSA, LuxSCS contributed to the continued development of the intangible assets, even though it had no employees. Again according to the Grand Duchy of Luxembourg and Amazon, the contributions made by the United States entities ATI and A9, namely the development and continued enhancement of the intellectual property, must be attributed to LuxSCS or regarded as part of LuxSCS’s contributions. In their view, LuxSCS thus performed ‘unique and valuable’ functions which justify treating it as the most complex part of the transaction. Amazon submits, moreover, that whether or not LuxSCS had the capacity to operate an electronic commerce business entirely on its own without licensing the intangible assets to another entity is irrelevant to the assessment of the uniqueness of LuxSCS’s functions.

180 The Commission disputes those arguments.

181 The Commission insists that LuxSCS merely held the intangible assets ‘passively’ and that it did not actually use them. It submits that the mere ownership of a unique and valuable intangible asset is not sufficient for that entity to be regarded as complex. Nor, in the present case, is it sufficient to justify the attribution to LuxSCS of almost all the profits generated by LuxOpCo, even if none of LuxOpCo’s activities could be carried out without access to the intangible assets. Following the conclusion of the Licence Agreement, LuxSCS was no longer entitled to use the assets, nor did it have the capacity to do so. Only LuxOpCo used the intangible assets in the course of its business. In that context, the Commission also submits that LuxSCS did not have any employees and did not have the capacity to carry out functions in relation to the development, enhancement and exploitation of the intangible assets.

182 Moreover, according to the Commission, the Grand Duchy of Luxembourg and Amazon wrongly refer to the contributions of Amazon group entities located in the United States (see paragraph 179 above), since those entities are not concerned by the Licence Agreement and act independently of LuxSCS. Any functions those entities may have performed in relation to the intangible assets, the circumstance that Amazon.com was directing LuxSCS or LuxOpCo or the characteristics of the Buy-In Agreement and the CSA are therefore irrelevant to the functional analysis of LuxSCS. The development functions performed by ATI and A9 cannot therefore be attributed to LuxSCS, since the various parties to the CSA act on their own behalf and at their own risk. The Commission argues that, in any event, the Buy-In Agreement and the CSA already fixed the arm’s length remuneration for the functions performed by ATI and A9 in relation to the intangible assets. Any other intra-group transaction between the US entities and LuxOpCo in relation to the intangible assets – the existence of which has not, in any event, been demonstrated by either the Grand Duchy of Luxembourg or Amazon – cannot justify the payment of LuxOpCo’s residual profits to LuxSCS.

183 In that regard, in the first place, it must be borne in mind that, as has already been noted in paragraph 166 above, according to paragraph 3.43 of the 1995 version of the OECD Guidelines, the ‘associated enterprise to which the transactional net margin method is applied should be the enterprise for which reliable data on the most closely comparable transactions can be identified’, and that ‘this will often entail selecting the associated enterprise that is the least complex of the enterprises involved in the controlled transaction and that does not own valuable intangible property or unique assets’. The concept of ‘valuable’ or ‘unique assets’ is not expressly explained in the 1995 version of the OECD Guidelines.

184 It follows from paragraph 3.43 of the 1995 version of the OECD Guidelines that those guidelines recommended that the party owning unique and valuable assets should not be used as the tested party for the purposes of applying the TNMM; rather another party to the controlled transaction should be used. The logic underlying paragraph 3.43 is that, in general, it is more complicated to find reliable comparables for the purpose of examining the party to the controlled transaction that owns unique and valuable intangible assets. That understanding was also apparent from paragraph 6.26 of the 1995 version of the OECD Guidelines. According to that paragraph, in cases involving highly valuable intangible property, it may be difficult to identify comparable transactions between independent undertakings. It is apparent from that same paragraph that the mere ownership of unique or valuable intangible assets makes the identification of comparables more difficult. It should be noted that paragraph 6.26 of the 1995 version of the OECD Guidelines is based on the premiss that an intangible asset may be deemed to be ‘unique’ when there is no comparable for that asset. An intangible asset is ‘valuable’ if it enables the generation of substantial revenue. Furthermore, it should be noted that that understanding corresponds to the definition of the concept set out in paragraph 6.17 of the 2017 version of the OECD Guidelines. It follows from that paragraph that ‘single and valuable intangible assets’ are those (i) that are not comparable to intangible assets used by parties to potentially comparable transactions, and (ii) the use of which in business operations is expected to yield greater future economic benefits than would be expected in the absence of those intangible assets.

185 In the present case, first, it is common ground that LuxSCS held the rights over the Amazon group’s intangible assets in Europe and that it made those assets available to LuxOpCo under the Licence Agreement.

186 In that respect, it should be noted, in addition to the elements set out in paragraphs 4 and 5 above that, under the assignment agreement concluded between ATI and LuxSCS on 1 January 2005, which forms part of the Buy-In Agreement, the ownership of some of those assets was assigned to LuxSCS (see Sections 3.1 and 3.2 of that agreement), in particular and essentially, the internet domain names in Europe, such as amazon.co.uk, amazon.fr and amazon.de.

187 Next, under the licence agreement concluded between ATI and LuxSCS on 1 January 2005, LuxSCS received the right to use, in Europe, most of the Amazon group’s intangible assets already existing in 2005, namely technology, inventions, patents, trade marks, customer-related rights, etc., without this being an exclusive licence right for LuxSCS.

188 In addition, under Sections 6.2(a) and 6.3(a) of the CSA, LuxSCS held a non-exclusive licence to the intellectual property of A9 and ATI developed after 2005, as well as the ownership of derivative works developed after 2005 from the intangible assets legally owned by LuxSCS.

189 Lastly, LuxSCS also entered into intellectual property assignment and licensing agreements with the EU local affiliates, under which it received the registered trade marks and the intellectual property rights held by those companies in respect of the EU websites.

190 Accordingly, LuxSCS held rights to intangible assets including the following three types of intellectual property: technology, marketing-related intangible assets and customer data. The technology included a complete range encompassing all aspects of the Amazon group’s business and, in particular, technologies for that group’s software platform, the appearance of the websites, catalogues, order processing, logistics, search and navigation functionalities, customer service and personalisation functions.

191 Secondly, it should be noted that, although the Commission maintains that LuxSCS did not perform ‘unique and valuable functions’