(Reuters) – Amazon.com Inc on Friday defeated an appeal by the US Internal Revenue Service in what the online store has called a $ 1.5 billion dispute over its tax treatment of transactions with a Luxembourg subsidiary.
FILE PHOTO: An Amazon package is seen to be shipped in London, UK on February 29, 2016. REUTERS / Toby Melville / Files
In a 3-0 decision, the 9th U.S. District Court in Seattle upheld a 2017 US Tax Court ruling on intangible assets that Amazon.com transferred in 2005 and 2006 to the entity, Amazon Europe Holding Technologies SCS.
Intangible assets include goods such as customer lists, intellectual property and software. The appeal court rejected a broader definition sought by the tax authorities that would have strengthened Amazon.com's tax bill.
Amazon.com has said that 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 that it could meet "significant" new tax liabilities if the tax court's ruling was reversed or the IRS approach was used for other tax years.
Amazon.com's net revenue was $ 10.07 billion in 2018 and $ 6.19 billion from January to June this year.
U.S. The 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.
U.S .. companies pay corporation tax domestically when they make money outside the country.
However, according to the Court of Appeal, tax rules allow companies such as Amazon.com to transfer intangible assets to foreign subsidiaries, as long as this is done at arm's length and the entities pay their share of intangible development costs.
Circuit Judge Consuelo Callahan said the drafting history of current regulations and the Department of Finance's thinking at the time "strongly favor" Amazon's argument that "intangible" assets were limited to "independently transferable" assets.
She rejected the IRS's proposal that they also include what she called "more nebulous" assets, including the value of Amazon.com's goodwill, employees, and "culture of innovation."
In a footnote, Callahan said that Congress changed the 2017 intellectual property tax definition, and there was "no doubt" that 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