A U.S. appellate court has sided with Amazon.com Inc. over its tax dispute with the Internal Revenue Service, in relation to the online retailer's transfer of intangible assets to its Luxembourg unit.
The 9th U.S. Circuit Court of Appeals in Seattle on Aug. 16 unanimously upheld a 2017 ruling by the U.S. Tax Court concerning the intangible properties that Amazon transferred to its subsidiary Amazon Europe Holding Technologies SCS between 2005 and 2006.
Amazon had entered into a cost-sharing arrangement with Amazon Europe Holding Technologies in a bid to shift a substantial amount of income from its U.S.-based businesses to its European subsidiaries. Under the arrangement, the holding company made a "buy-in" payment for Amazon assets that met the regulatory definition of an "intangible."
However, the IRS Commissioner at the time concluded that the buy-in payment was not in accordance with the transfer pricing regulations and the tax agency performed its own calculation. Amazon challenged this valuation in the U.S. Tax Court.
According to the court documents, the IRS Commissioner sought to include all intangible assets of value, including "residual-business assets" like the e-commerce giant's culture of innovation, the value of workforce in place, going concern value, goodwill and growth options.
However, the appellate court concluded that the definition of "intangible" is limited to independently transferable assets and does not include residual-business assets.
Amazon and the IRS did not immediately respond to S&P Global Market Intelligence's requests for comment.
