The 9th Circuit Court of Appeals affirmed the Tax Court in Amazon.com & Subsidiaries v. Commissioner
The case addressed Amazon’s tax years 2005 and 2006. Amazon had entered into a cost sharing agreement with a European affiliate and had computed a buy-in payment of $255 million for pre-existing intangibles contributed to the cost sharing by Amazon. The IRS performed its own calculation, valuing the buy-in at $3.6 billion.
The main issue was whether the definition under then-existing regulations is broad enough to include all intangibles, including what the IRS refers to as “residual-business assets”, such as Amazon’s culture of innovation, workforce in place, and goodwill. The 9th Circuit concluded that the drafting history of the 1993 and 1994 transfer pricing regulations that applied to the issue limited the definition of intangibles to independently transferable assets.
Because the Amazon case applies to pre-2009 regulations, it should have limited impact. However, the first footnote to the case indicated that, were the outcome of the case decided under the 2009 temporary regulations or the changed definition of intangible property in the Tax Cuts and Jobs Act of 2017, the outcome would be different. Although this comment is dicta in this case, it is a clear indication of the 9th Circuit’s thinking.
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