Amazon.com v. Commissioner, No. 17-72922 (9th Cir. 2019)
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Amazon filed a petition in the tax court challenging the IRS's valuation of a buy-in payment for pre-existing intangibles related to the company's contribution to a cost sharing arrangement, whereby Amazon and a holding company for the European subsidiaries would be treated as co-owners of the intangibles. The tax court ruled primarily with Amazon and the Commissioner appealed.
The Ninth Circuit affirmed the tax court's decision and held that the definition of "intangible" in the applicable transfer pricing regulations did not include residual-business assets. Although the language of the definition is ambiguous, the panel held that the drafting history of the regulations shows that "intangible" was understood to be limited to independently transferable assets.
Court Description: Tax The panel affirmed the Tax Court’s decision on a petition for redetermination of federal income tax deficiencies, in an appeal involving the regulatory definition of intangible assets and the method of their valuation in a cost-sharing arrangement. In the course of restructuring its European businesses in a way that would shift a substantial amount of income from U.S.-based entities to the European subsidiaries, appellee Amazon.com, Inc. entered into a cost sharing arrangement in which a holding company for the European subsidiaries made a “buy-in” payment for Amazon’s assets that met the regulatory definition of an “intangible.” See 26 U.S.C. § 482. Tax regulations required that the buy-in payment reflect the fair market value of Amazon’s pre-existing intangibles. After the Commissioner of Internal Revenue concluded that the buy-in payment had not been determined at arm’s length in accordance with the transfer pricing regulations, the Internal Revenue Service performed its own calculation, and Amazon filed a petition in the Tax Court challenging that valuation. At issue is the correct method for valuing the pre- existing intangibles under the then-applicable transfer pricing regulations. The Commissioner sought to include all intangible assets of value, including “residual-business assets” such as Amazon’s culture of innovcation, the value AMAZON.COM V. CIR 3 of workforce in place, going concern value, goodwill, and growth options. The panel concluded that the definition of “intangible” does not include residual-business assets, and that the definition is limited to independently transferrable assets.
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