By Foo Yun Chee

LUXEMBOURG (Reuters) - Amazon should not pay 250 million euros ($268 million)in back taxes to Luxembourg as ordered by EU competition enforcers, an adviser to Europe's top court said on Thursday, as she cited errors in the EU regulator's assessment.

The European Commission in its 2017 decision said Amazon paid no taxes on almost three-quarters of its profits from EU operations due to a Luxembourg tax arrangement allowing it to channel profits to a holding company tax-free.

The EU antitrust watchdog equated the tax deal to illegal state aid. However, a lower tribunal in 2021 scrapped the EU decision, dealing a blow to EU competition chief Margrethe Vestager's crackdown on preferential deals.

"The Commission erred in deciding that Luxembourg had granted unauthorised state aid to Amazon in the form of tax advantages," Advocate General Juliane Kokott at the EU Court of Justice (CJEU) said in a non-binding opinion.

"The reference system relied on by the Commission in order to review whether there was a selective advantage, namely the OECD Transfer Pricing Guidelines rather than Luxembourg law, was incorrect," she said.

Kokott said the General Court's judgment annulling the EU decision should be upheld.

The CJEU, which normally follows such recommendations in four out of five cases, will rule in the coming months.

The case is C-457/21 P Commission v Luxembourg and Others.

($1 = 0.9339 euros)

(Reporting by Foo Yun Chee and Benoit Van Overstraeten; editing by Jason Neely)