The US Tax Court has ruled in favour of Amazon over a costly transfer pricing dispute with the Internal Revenue Service (IRS) that could have seen it hit with a $1.5bn (£1.2bn) bill
The case centred on intellectual property that Amazon had assigned to its European subsidiary based in Luxembourg.
The IRS assessed that Amazon had liabilities to federal income taxes of nearly $8.4m for 2005 and over $225.6m for 2006, arguing it did not agree with how the world’s largest online retailer has accounted for intangible assets it required to run its European arm.
Between 2005 and 2006, Amazon had transferred intangible assets including software and technology used to run its European websites and fulfilment centres; marketing materials including domain names and trademarks; and customer lists to its Luxembourg subsidiary.
As a result, the IRS made transfer pricing readjustments, allocating income from Amazon’s Luxembourg subsidiary to the US parent business.
The court had to decide Amazon’s ‘buy-in obligation’ for the assets. Amazon disputed the IRS’s methodology, arguing it treated the assets as if they held perpetual lifespans and that the IRS was including the value of intangible property that was subsequently developed.
Amazon claimed if it had lost it could have had been forced to pay a US tax bill as high as $1.5bn and potentially faced ‘significant’ tax liabilities in the years to come.
Judge Albert Lauber rejected the IRS’s case, branding it ‘arbitrary, capricious and… unreasonable’.
The ruling can be read here.