We previously discussed that the U.S. Tax Court ruled against the IRS in this $1.5 billion transfer pricing dispute with Amazon, which currently has experts calling for a re-examination of the agency’s valuation methodologies in order to prevent it from wasting its own resources and those of taxpayers.
Using methodologies the U.S. Tax Court had already knocked down in another transfer pricing lawsuit against Veritas Software Corp. In 2009, the IRS made substantial transfer pricing adjustments that reallocated more income from Amazon’s European subsidiary to its U.S. operations and assessed more than $234 million in deficiencies for the 2005 and 2006 tax years. The IRS’ position could have resulted in an overall tax liability of $1.5 billion, plus interest, Amazon estimated.
Now, the IRS not only has agreed that it owes the online retail giant $9.5 million for the 2005 tax year, but that there is an income tax deficiency of $2.5 million from the following year.
In a stipulation entered by the court, the IRS and Amazon agreed that the company had overpaid its taxes in the amount of $9.55 million for the tax year ending on Dec. 31, 2005, and that there is a deficiency of $2.54 million in income tax due from Amazon for the tax year ending on Dec. 31, 2006. The computations do not include interest payments due.
Amazon had previously estimated that the IRS’ notices of proposed adjustments issued for a seven-year period, starting in 2005, could have resulted in a tax liability of $1.5 billion plus interest.
The case is Amazon.com Inc. & Subsidiaries v. Commissioner of Internal Revenue, case number 31197-12, in the U.S. Tax Court.