Amazon.com rejects the IRS call in a US tax litigation

(Reuters) – Amazon.com Inc. on Friday rejected an appeal by the US Internal Revenue Service in what the online retailer had called a $ 1.5 billion dispute over the tax treatment of transactions with a Luxembourg subsidiary .

In a 3-0 decision, the US 9th Court of Appeals in Seattle upheld a US Tax Court ruling in 2017 on intangible assets that Amazon.com had transferred in 2005 and 2006 to the US. unit, Amazon Europe Holding Technologies SCS.

Intangible assets include items such as customer lists, intellectual property and software. The court of appeal rejected a broader definition sought by the IRS that would have increased Amazon.com's tax bill.

Amazon.com has chosen Luxembourg for its European headquarters because of its central location, its lowest value-added tax rate in Europe and its relatively low corporate tax rate.

The Seattle-based company had warned that it could face "significant" new tax obligations if the Tax Court's decision was overturned or the IRS approached. was applied to other years of taxation.

Amazon.com's net income reached $ 10.07 billion in 2018 and $ 6.19 billion from January to June of this year.

The US Department of Justice, which represented the IRS, did not immediately respond to requests for comment. Amazon.com and its attorneys did not immediately respond to similar requests.

US companies pay corporate income tax in the country even if they earn money outside the country.

However, according to the Court of Appeal, the tax regulations allow companies such as Amazon.com to transfer intangible assets to foreign subsidiaries, to the extent that this is done at arm's length and the units pay their share. intangible development costs.

Constituency Judge, Consuelo Callahan, said that the drafting history of the applicable regulations and the Treasury Department's thinking at the time "were strongly in favor" of the argument. Amazon that "intangible" assets were limited to "independently transferable" assets.

She rejected the IRS proposal that they also include what she called "more nebulous" assets, including the value of Amazon.com's goodwill, employees and a "culture of innovation." ".

In a footnote, Callahan said that Congress had changed the definition of intangible good when the 2017 redesign, and that there was "no doubt" that the position of the & # 39; 39; IRS would be correct if the new definition governed the Amazon.com case.

The case is Amazon.com Inc. and others c. Commissioner of Internal Revenue, No. 17-72922, 9th Circuit Court of Appeal.