Business

Amazon not liable for $1.5bn tax bill, judge rules

Online giant wins transfer pricing case against US Internal Revenue Service

The IRS case involved transfer pricing, which arises when different units of multinationals transact with each other

Fri Mar 24 2017 - 13:32

Amazon. com has won a tax dispute with the US Internal Revenue Service (IRS), involving more than $1.5 billion (€1.39 billion), in relation to the transactions of a Luxembourg unit more than a decade ago.

Judge Albert Lauber of the US Tax Court rejected a variety of IRS arguments and found that, on several occasions, the agency abused its discretion or acted arbitrarily or capriciously.

Amazon’s ultimate tax liability from the decision was not immediately clear.

The world’s largest online retailer has said the case involved transactions in 2005 and 2006, and could boost its federal tax bill by $1.5 billion plus interest. It also said losing the case could add “significant” tax liabilities in later years.

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Amazon made just $2.37 billion of profit in 2016, four times what it made in the four previous years combined, on revenue of $136 billion.

Judge Lauber's decision "should shield Amazon from potentially significant tax obligations to the IRS covering years beyond the ones covered in the lawsuit", said Colin Sebastian, an analyst at Baird Equity Research.

The IRS declined to comment. Amazon and its lawyer, John Magee, a partner at Morgan, Lewis & Bockius, also declined to comment.

Trump accusation

Before entering the White House, US president Donald Trump contended that Amazon, run by billionaire Jeff Bezos, failed to pay enough taxes, once accusing the company on Fox News of "getting away with murder, tax-wise".

The IRS case involved transfer pricing, which arises when different units of multinational companies transact with each other.

Amazon argued that the IRS had overestimated the value of “intangible” assets, such as software and trademarks, that it had transferred to a Luxembourg unit, Amazon Europe Holding Technologies.

Judge Lauber said Amazon had done this through a plan, called “Project Goldcrest”, to have the “vast bulk” of income from its European businesses taxed in Luxembourg at a “very low rate”.

"This is good for everybody, not just Amazon," said Michael Pachter, a Wedbush Securities analyst who has practised tax law. "It reaffirms that the tax law permits wholly owned subsidiaries which can license intellectual property", as Amazon did. "Totally legal, totally legal."

Amazon has said it may face additional tax bills in Europe if authorities in Brussels conclude that prior rulings by Luxembourg tax officials amounted to improper “state aid” which gave the company an unfair advantage over rivals.

A formal probe into those rulings began in October 2014, Amazon has said.

– Reuters

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