Champagne corks will be popping in Seattle after US taxmen lost their case against American web giant Amazon over the non-payment of taxes on overseas earnings.
On Thursday, the US Tax Court ruled [PDF] in favor of Amazon, saying it was legal for the internet souk to channel its European sales through a low-tax Luxembourg subsidiary in 2005 and 2006, rather than America. Had it lost, Amazon could have faced a US tax bill as high as $1.5bn, and lower profits for future years. (Uncle Sam wanted the Jeff Bezos-led biz to cough up $234m, but that's now moot.)
Amazon US sold the rights to parts of its technology and the trademark for that technology to its European subsidiaries, for a lump sum plus annual payments. As a result, Amazon Europe operated independently and its revenues were out of reach from the IRS – the US government's tax collectors. Its investigators weren't happy with this arrangement.
This financial operation began in 2004, and was dubbed Project Goldcrest after the national bird of Luxembourg. The European company Amazon set up wasn't a shell company, the judgment states, since it played a significant role in creating new Amazon services in the UK, France, Germany, and Ireland.
The court found that the IRS had overstated what it thought Amazon's Goldcrest subsidiary should have paid for the intangible assets of its American parent company. The judgment states that the IRS' "determination with respect to the buy-in payment is arbitrary, capricious, and unreasonable."
Amazon won't be the only one celebrating. Such tax avoidance is common among technology companies and other multinationals. The ruling will have a chilling effect on the IRS' – and other countries' tax authorities' – plans to go after other overseas earnings.
Amazon had no statement on the case at time of going to press. ®