Amazon.com defeats IRS appeal in U.S. tax dispute
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[August 17, 2019] By
(Reuters) - Amazon.com Inc on Friday
defeated an appeal by the U.S. Internal Revenue Service in what the
online retailer has called a $1.5 billion dispute over its tax treatment
of transactions with a Luxembourg subsidiary.
In a 3-0 decision, the 9th U.S. Circuit Court of Appeals in Seattle
upheld a 2017 ruling by the U.S. Tax Court related to intangible assets
that Amazon.com transferred in 2005 and 2006 to the unit, Amazon Europe
Holding Technologies SCS.
Intangible assets include such items as customer lists, intellectual
property and software. The appeals court rejected a broader definition
sought by the IRS that would have boosted Amazon.com's tax bill.
Amazon.com has said it chose Luxembourg for its European headquarters
because of its central location, and because it had Europe's lowest
value-added tax rate and a relatively low corporate tax rate.
The Seattle-based company had warned it might face "significant" new tax
liabilities if the Tax Court ruling was reversed, or the IRS approach
was applied to other tax years.
Amazon.com's net income totaled $10.07 billion in 2018, and $6.19
billion from January to June of this year.
The U.S. Department of Justice, which represented the IRS, did not
immediately respond to requests for comment. Amazon.com and its lawyers
did not immediately respond to similar requests.
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An Amazon package is seen after being delivered in London, Britain
February 29, 2016. REUTERS/Toby Melville/Files
U.S. companies pay corporate income taxes domestically when they make money
outside the country.
But according to the appeals court, tax regulations allow companies such as
Amazon.com to transfer intangible assets to foreign affiliates, so long as this
is done at arms-length and the units pay their share of intangible development
Circuit Judge Consuelo Callahan said the drafting history of applicable
regulations and the Treasury Department's thinking at the time "strongly favor"
Amazon's argument that "intangible" assets were limited to "independently
She rejected the IRS's proposal that they also encompass what she called "more
nebulous" assets including the value of Amazon.com's goodwill, employees and
"culture of innovation."
In a footnote, Callahan said Congress changed the definition of intangible
property in the 2017 tax overhaul, and that there was "no doubt" the IRS
position would be correct if the new definition governed the Amazon.com case.
The case is Amazon.com Inc et al v Commissioner of Internal Revenue, 9th U.S.
Circuit Court of Appeals, No. 17-72922.
(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)
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