Amazon Inc. is fighting the U.S. Internal Revenue Service over an international tax bill in court, which may have a significant knock-on effect for other technology firms should the federal agency win.
The IRS told Amazon in November that the retailer had unpaid taxes for 2005 and 2006. According to a court filing seen by Reuters, the IRS also contests tax deductions Amazon claimed on it net operating losses.
The online retail giant said in April 2011 that it faces $1.5 billion in additional U.S. federal taxes over a seven-year period, beginning in 2005, according to a filing with the U.S. Securities and Exchange Commission.
Amazon believes, according to the news agency, that the IRS has overestimated the value of Amazon's "intangible property," which includes software, trademarks, marketing property and other assets.
This may ultimately hit other technology firms because their software assets are difficult to value, which would affect how much those firms pay in tax.
The IRS is concerned that the online retailer's use of "transfer pricing" -- which allows corporates to buy something in one country and charge its regional subsidiary branches to buy it off of them, often for a slightly higher price -- which can be used to avoid paying the full amount of tax in one region.
"Transfer pricing" was brought up recently by members of the U.K. Parliament, which has already grilled Amazon over its tax set-up, in which politicians accused the Web giant of being "secretive" over its accounts.
Margaret Hodge MP, the chair of the U.K. Parliament's Public Accounts Committee, flat out asked Andrew Cecil, Amazon's director of public policy: "What are you hiding?" during a hearing late last year. Cecil said the company was "not hiding anything," but failed to hand over the company's accounts.
Weeks later, Amazon submitted its accounts under a request for confidentiality -- which the parliamentary committee decided against, and published the figures anyway.
For its operations in the EU, for instance, U.S.-headquartered Amazon's technologies are licensed appropriately throughout Europe by its subsidiaries. Licensing fees for that intellectual property are paid to the U.S. head office by European firms for U.K. sales in 2011.
We've put in questions to Amazon, but did not hear back at the time of writing. If we get a response, we will update the article.