The largest online retailer of the world, Amazon has won over $1.5 billion tax dispute against Internal Revenue Service (IRS) over transactions involving a Luxembourg unit more than a decade ago. Both the IRS and Amazon did not comment over the matter.
The US Tax Court Judge Albert Lauber rejected a number of IRS arguments and found that the several agencies abused its discretion on several occasions and acted capriciously or arbitrarily. The entire tax liability of Amazon from the decision was not immediately clear.
Amazon said the case is about the transactions in 2005 and 2006 and could boost its federal tax bill by $1.5 billion plus interest. It also said a loss could add significant tax liability in later years.
Amazon booked profit of $2.37 billion on revenue of $136 billion in 2016. It was four times of the four prior years combined profit.
An analyst said that Lauber’s decision should protect Amazon from potentially significant tax obligations to the IRS covering years beyond the ones covered in lawsuit. This is not only good for Amazon but everyone. It reaffirms that the tax law permits wholly owned subsidiaries that they can license intellectual property and Amazon did the same. It was totally legal.
The IRS case involved transfer pricing which arises when different units of MNCs transact with each other.
The IRS was claimed for overestimating the value of intangible assets like software and trademarks that had been transferred to Luxembourg unit, Amazon Europe Holding Technologies SCS.
Lauber said Amazon did under a plan called “Project Goldcrest” to have the “vast bulk” of income from its European businesses taxed in Luxembourg at a very low rate.
The IRS found that Amazon’s transactions were not follow arm’s length or else improperly lowered its domestic tax bill.
Amazon said additional tax bills may be faced in Europer if authorities in Brussels conclude that prior rulings by Luxembourg tax officials and the result is improper state aid that gave it an unfair advantage over rivals.
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