U.S. Court Of Appeals Issues Opinion In Amazon Case

On August 16, 2019, the United States (U.S.) Court of Appeals for the Ninth Circuit (the Court) issued its opinion in the case of Amazon.com, Inc. & Subsidiaries v. Commission of Internal Revenue, finding in favor of the taxpayer. This case pertains to the arm's-length nature of a buy-in payment made by a Luxembourg subsidiary of Amazon for pre-existing intangible property associated with a cost sharing arrangement entered in 2005.

Amazon.com. Inc. originally recorded a buy-in payment of $255 million, which was recalculated by the Commissioner to be approximately $3.6 billion. To arrive at its value, the Commissioner applied a methodology which identified all non-routine/non-benchmarkable income as the income associated with the transferred intangibles. In doing so, the Commissioner essentially argued that all intangible assets of value, including "residual-business assets" such as goodwill and going concern value, were compensable intangibles under the regulations that were in place at the time.

Given the time period at issue (2005 and 2006), the applicable regulatory framework is the U.S. transfer pricing regulations promulgated in 1994 and 1995. The Court affirmed the U.S. Tax Court's 2017 decision that these regulations...