Extended Background

Amazon’s digital business relies on massive, globally shared technology platforms. To align costs and profits cross-border, Amazon’s EU subsidiary participated in a cost-sharing arrangement for platform development. At the time, international practice around the scope of IP valuation was still evolving, and regulatory definitions of “intangibles” were narrower than today.

Detailed Arguments

Taxpayer

• Argued that only officially recognized, specifically defined intangibles should be valued in platform buy-ins.

• Used the Asset Purchase Price (APP) method to determine fair buy-in payments without layering on speculative business value.

Tax Authority (IRS)

• Wanted a broad approach: not just statutory IP, but also "latent" value (workforce, goodwill, going concern) as part of the buy-in.

• Used Comparable Uncontrolled Transaction (CUT) and discounted cash flow models to support higher, all-in valuations.

Court Reasoning

• Sided with Amazon, strictly limiting buy-in value to explicit, regulatory intangibles.

• Excluded undefined or "imaginary" future business value, clarifying legal boundaries for global cost-sharing.

Procedural Journey

• Multi-year audits challenged the scope of intangible property that could be priced in.

• The US Tax Court ultimately ruled for Amazon, cutting the IRS's claim to a fraction of its original amount.

Implications Beyond the Case

• Created a global standard: only well-defined IP qualifies for buy-in pricing in cost-sharing.

• Precedent for tech MNEs like Google and Facebook disputing attempts to lump all future business value into TP assessments.

• Lesson: Document and delineate the specific intangibles contributed to shared platforms; avoid gray-area value transfer claims.

Original Case Link:

US Tax Court opinion (PDF)