In a financial coup, Amazon has won a $1.5 Billion tax dispute against the Internal Revenue Service. The case hails from almost a decade ago and involved a Luxembourg unit of the company. The case was overseen by Judge Albert Lauber of the U.S. Tax Court, who rejected a bunch of IRS arguments, and said that the agency had abused its powers and had acted out of line.
According to Amazon, the case involved a string of transactions from 2005 and 2006. Had the decision gone against Amazon, the company could have found itself paying taxes to the tune of $1.5 billion plus interest. The company also said that such a loss, had it been incurred, would have caused significant tax liabilities for Amazon in later years as well.
The company has hit a good streak at present. For instance, it made around $2.37 billion of profit in 2016. To compare it with Amazon’s past performance, the amount was almost four times what it made in the four prior years combined. The profit came on a total revenue of $136 Billion. Meanwhile, the latest decision should serve to protect the company from tax obligations to the IRS, saving it some big bucks.
The environment is certainly none too friendly for Amazon. President Donald Trump for instance, once famously said that the company did equivalent of murder with respect to tax evasion. This particular case meanwhile, had to do with “transfer pricing”. In case you are unaware of it, transfer pricing is a process through which different units of multinational companies transact with each other. They may do it for a variety of purposes and sometimes, the intent of this transfer pricing is less than scrupulous and has to do with tax evasion.
Amazon was said to have transfered assets including intellectual properties and so on, to its Luxembourg unit in order to evade taxes. The company has come out clean this time though. It will be interesting to see how the IRS decides to pursue this case further. It can dig up further evidence and probably will, considering that an Amazon win in this case will encourage other companies to follow the example.
