Amazon.com defeats IRS appeal in U.S. tax dispute

(Reuters) – Amazon.com Inc (AMZN.O) on Friday defeated an appeal by the U.S. Internal Revenue Service in what the web retailer has referred to as a $1.5 billion dispute over its tax remedy of transactions with a Luxembourg subsidiary.

In a 3-Zero choice, the ninth U.S. Circuit Court of Appeals in Seattle upheld a 2017 ruling by the U.S. Tax Court associated to intangible property that Amazon.com transferred in 2005 and 2006 to the unit, Amazon Europe Holding Technologies SCS.

Intangible property embody such gadgets as buyer lists, mental property and software program. The appeals courtroom rejected a broader definition sought by the IRS that will have boosted Amazon.com’s tax invoice.

Amazon.com has stated it selected Luxembourg for its European headquarters due to its central location, and since it had Europe’s lowest value-added tax fee and a comparatively low company tax fee.

The Seattle-based firm had warned it would face “significant” new tax liabilities if the Tax Court ruling was reversed, or the IRS method was utilized to different tax years.

Amazon.com’s web revenue totaled $10.07 billion in 2018, and $6.19 billion from January to June of this yr.

The U.S. Department of Justice, which represented the IRS, didn’t instantly reply to requests for remark. Amazon.com and its legal professionals didn’t instantly reply to related requests.

U.S. firms pay company revenue taxes domestically once they earn a living exterior the nation.

But in response to the appeals courtroom, tax rules permit firms similar to Amazon.com to switch intangible property to international associates, as long as that is completed at arms-length and the models pay their share of intangible improvement prices.

Circuit Judge Consuelo Callahan stated the drafting historical past of relevant rules and the Treasury Department’s pondering on the time “strongly favor” Amazon’s argument that “intangible” property have been restricted to “independently transferable” property.

She rejected the IRS’s proposal that additionally they embody what she referred to as “more nebulous” property together with the worth of Amazon.com’s goodwill, workers and “culture of innovation.”

In a footnote, Callahan stated Congress modified the definition of intangible property in the 2017 tax overhaul, and that there was “no doubt” the IRS place could be right if the brand new definition ruled the Amazon.com case.

The case is Amazon.com Inc et al v Commissioner of Internal Revenue, ninth U.S. Circuit Court of Appeals, No. 17-72922.