Bezos Ducks US Tax Court Subpoena In Transfer Pricing Case
Law360, New York (December 11, 2014, 3:21 PM ET) — Amazon.com Inc. CEO Jeff Bezos got out of having to testify in a suit concerning a Luxembourgian subsidiary and tax obligations for the years 2005-2006, when the U.S. Tax Court granted his motion to quash the Internal Revenue Service’s subpoena on Wednesday.
Tax Court Judge Albert B. Lauber quashed the subpoena because he said Mr. Bezos had successfully convinced the court that having to testify about the company’s transfer pricing with foreign subsidiaries would impose “undue burden or expense” on him.
According to Lauber’s opinion, the IRS had initially only asked the court to depose 16 people, and Bezos’ name was not on that list. The IRS only floated Bezos as a potential witness in September, and issued its subpoena on Oct. 14. Bezos asked the court to quash the subpoena on Oct. 21, saying testifying would “would cause a substantial disruption of his management responsibilities” during the busy holiday season.
According to Judge Lauber, Bezos’ role as chief executive of the company meant his subpoena warranted “special scrutiny.”
“In such cases, courts have required the requesting party to show that the executive possesses unique knowledge of relevant facts and that the information sought cannot be obtained by less burdensome means,” he said.
He found that Bezos’ contribution to the court record would be “slight” because 21 Amazon employees had already testified, six of whom reported directly to him as senior leadership team members.
“Respondent has not identified any relevant topic not covered by prior testimony or any subject about which Mr. Bezos is alleged to possess unique knowledge,” Judge Lauber said.
He pointed to the fact that the IRS had not even sought to depose Bezos in its initial deposition request and indicated to the court that it might still not call him if this motion to quash were denied. Therefore, he found the need for Bezos’ testimony minimal.
Judge Lauber also determined the burden on Bezos would be great. He pointed to the amount of preparation it would require, given the breadth of subjects the IRS planned to grill him on, and noted the amount of time lawyers planned to question him was longer than any of the other witnesses.
“Mr. Bezos is the CEO of one of the largest companies in the United States,” he said. “The possibility that he could be required to testify for a full day on subjects that have been comprehensively covered by other witnesses confirms the burdensome nature of respondent’s request.”
Judge Lauber said he had not applied special scrutiny reserved for senior officers lightly, pointing out that six other senior officers had already testified, and two more were expected to testify before the conclusion of trial.
Initiated in 2012, Amazon’s case against the IRS seeks to resolve Notices of Proposed Adjustments the agency issued for a seven-year period starting in 2005 relating to its transfer pricing with foreign subsidiaries, which the retailer estimates could result in a tax liability of $1.5 billion plus interest.
In July, Lauber denied Amazon’s motion for partial summary judgment over its use of certain allocation methods employed in a transfer pricing agreement with Amazon Europe Holdings Technologies SCS, a company affiliate headquartered in Luxembourg, that the IRS has objected to.
Amazon counsel declined to comment on Thursday.
The IRS does not comment on litigation matters.
Amazon is represented by John B. Magee, Beth L. Williams, Michael D. Kummer, Saul Mezei, Sanford W. Stark, John G. Ryan, John A. Polito, Carl T. Ussing, Hans D. Gerling-Ritters and Nicholas A. Zemil of Morgan Lewis & Bockius LLP, along with Rajiv Madan, Julia Mara Kazaks, Christopher P. Murphy and Royce L. Tidwell of Skadden Arps Slate Meagher & Flom LLP.
The IRS is represented by Jill A. Frisch, Melissa D. Lang, Lloyd T. Silberzweig, Anne O’Brian Hintermeister, Mary E. Wynne, Shannon L. Cohen, Melissa L. Hilty and others from the IRS Division Counsel for Large and Mid-Size Business.
The case is Amazon.com Inc. & Subsidiaries v. Commissioner of Internal Revenue, case number 31197-12, in the U.S. Tax Court.
