On Thursday, Amazon.com won a tax dispute of over $1.5 billion with the Internal Revenue Service related to transactions involving a unit in Luxembourg over a decade ago.
A U.S. Tax Court judge rejected a number of arguments by the IRS and found on a number of occasions that the revenue agency had act arbitrarily, capriciously or abused its discretion.
The ultimate tax liability of Amazon from this decision was not clear at the time of the decision.
The largest retailer online in the world has said this case included transactions dating back to 2005 to 2006 and could increase its bill for federal tax by over $1.5 billion plus any interest. Amazon also said losing the case could add substantial tax liabilities in later years.
Amazon’s profit was $2.37 billion in 2016, which is four times the profit it earned in the four years previous to that combined, on $136 billion in revenue.
The decision by the tax judge should shield Amazon from possible significant obligations of tax to the IRS regarding the years covered in this lawsuit, said an analyst in London on Thursday following the judge’s ruling.
Prior to arriving in the White House, current President Donald Trump said that Amazon, run by Jeff Bezos did not pay enough taxes.
The case involving the IRS was about transfer pricing, which comes about when different units within a multinational company transact with one another.
Amazon argued the IRS had overestimated the intangible assets value. Those are items like trademarks and software and included ones that were transferred to its unit in Luxembourg.
The judge said that Amazon did that through its plan known as Project Goldcrest to have a large bulk of income from its businesses in Europe taxed in Luxembourg at a low rate.
The IRS said that the dealings by Amazon were not done at arm’s length and it had lowered its bill for domestic tax improperly.
Amazon has indicated that it could face even more tax bills across Europe if authorities in Belgium conclude prior rulings by tax officials in Luxembourg amounted to state aid deemed improper that gave the e-commerce giant unfair advantage compared to its rivals.
A formal investigation into the rulings started during October of 2014 said Amazon by the European Commission.