* IRS tax estimates inaccurate, Amazon says
* Other technology companies watching case
By Patrick Temple-West
WASHINGTON, Jan 15 Online retailer Amazon Inc
is fighting the U.S. Internal Revenue Service over a
$234 million international tax bill, a dispute similar to others
in which the agency has struggled to collect corporate taxes.
The case, filed on Dec. 28 in U.S. Tax Court in Washington,
has implications for other technology companies with software
assets that may prove difficult to value for tax purposes.
The IRS informed Amazon in November 2012 of what the agency
said were unpaid taxes for 2005 and 2006. The agency also is
contesting tax deductions Amazon claimed on its net operating
losses, among other issues, according to the court filing.
Amazon first publicly disclosed in April 2011 that it faces
$1.5 billion in additional federal taxes over a seven-year
period, beginning in 2005, according to a Securities and
Exchange Commission filing.
Amazon and the IRS declined to comment on Tuesday. A lawyer
with Baker & McKenzie LLP, which is representing Amazon, could
not be reached for comment.
The case involves a "transfer pricing" tax dispute.
Multinational corporations value goods and services moving
across international borders from one corporate unit to another.
These cash transfers are frequently managed to reduce
corporations' global tax costs.
Amazon argues that the IRS is overestimating the value of
Amazon's "intangible property," which includes computer
software, trademarks and marketing assets, according to the
The IRS counters that Amazon's European subsidiaries made
taxable payments to its U.S. parent company based on a
IRS 2009 COURT LOSS
Seattle-based Amazon, which is expected to have $60 billion
in annual revenue for 2012, contends the IRS used an inaccurate
estimate for calculating its transfer pricing taxes.
The IRS relied on an estimation method that was overturned
in a 2009 court decision involving Veritas Software Corp, now
part of Symantec Corp, Amazon said.
The Veritas decision was a stinging loss for the IRS,
prompting corporations to be more aggressive in fighting the IRS
over transfer pricing.
"From Amazon's perspective, you'd be crazy not to litigate
given what a sound defeat the IRS took in Veritas," said Neal
Kochman, a tax lawyer with Caplin & Drysdale, who is not
involved in the case.
The dispute "certainly will be watched broadly," he said.
The Veritas-based tax estimate derived in part from an
outside report conducted for the IRS by Horst Frisch Inc, a
transfer pricing consultancy.
Horst Frisch was contracted by the IRS to analyze Amazon's
transfer pricing figures. The firm submitted a January 2011
report to the IRS that was used to levy additional taxes, Amazon
A Horst Frisch official could not be reached for comment on
Because the case was filed in U.S. Tax Court, Amazon is not
required to pay the tax bill until the outcome of any court
decision. The case could be settled out of court. The case was
first reported in the trade publication Tax Analysts.
Amazon faces other tax troubles in the United States and
abroad. Amazon received a $252 million demand from French tax
authorities at the end of last year.
Amazon last year was forced to start collecting sales taxes
in more states, including California, Texas and Pennsylvania.