IRS appealing Tax Court loss in Amazon transfer pricing case

The US IRS is appealing its Tax Court loss in the Amazon transfer pricing case to the Court of Appeals for the Ninth Circuit.

The IRS’s appeal, filed on September 29, will challenge a March Tax Court ruling concerning Amazon’s cost-sharing agreement buy-in payment. The case is important because it is expected to provide fundamental guidance on the arm’s length pricing of transfers of intangibles.

In Amazon, the Tax Court dealt a serious blow to the IRS, rejecting the IRS’s use of the discounted cash flow method to recalculate a buy-in payment for Amazon’s transfer, under a cost sharing agreement, of preexisting intangibles to a Luxembourg subsidiary.

The IRS had sought transfer pricing adjustments from Amazon relating to this transfer which would have increased the online retailer’s taxable income by more than $1.5 billion in 2005 and 2006.