Amazon.com 2013 Annual Report Download - page 75

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The reconciliation of our tax contingencies is as follows (in millions):
December 31,
2013 2012 2011
Gross tax contingencies – January 1 $ 294 $ 229 $ 213
Gross increases to tax positions in prior periods 78 91 22
Gross decreases to tax positions in prior periods (18)(47)(3)
Gross increases to current period tax positions 54 26 4
Audit settlements paid (1)(4)(1)
Lapse of statute of limitations — (1)(6)
Gross tax contingencies – December 31 (1) $ 407 $ 294 $ 229
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(1) As of December 31, 2013, we had $407 million of tax contingencies, of which $346 million, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2013 and 2012, we had accrued interest and penalties, net of federal income tax benefit, related to
tax contingencies of $33 million and $25 million. Interest and penalties, net of federal income tax benefit, recognized for the
years ended December 31, 2013, 2012, and 2011 was $8 million, $1 million, and $3 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for the calendar
year 2005 or thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or
our net operating losses. As previously disclosed, we have received Notices of Proposed Adjustment from the IRS for the 2005
and 2006 calendar years relating to transfer pricing with our foreign subsidiaries. The IRS is seeking to increase our U.S.
taxable income by an amount that would result in additional federal tax over a seven year period beginning in 2005, totaling
approximately $1.5 billion, subject to interest. To date, we have not resolved this matter administratively and, in December
2012, we petitioned the U.S. Tax Court to resolve the matter. We continue to disagree with these IRS positions and intend to
contest them vigorously.
Certain of our subsidiaries are under examination or investigation or may be subject to examination or investigation by
the French Tax Administration (“FTA”) for calendar year 2006 or thereafter. These examinations may lead to ordinary course
adjustments or proposed adjustments to our taxes. While we have not yet received a final assessment from the FTA, in
September 2012, we received proposed tax assessment notices for calendar years 2006 through 2010 relating to the allocation
of income between foreign jurisdictions. The notices propose additional French tax of approximately $250 million, including
interest and penalties through the date of the assessment. We disagree with the proposed assessment and intend to contest it
vigorously. We plan to pursue all available administrative remedies at the FTA, and if we are not able to resolve this matter with
the FTA, we plan to pursue judicial remedies. We are also subject to taxation in various states and other foreign jurisdictions
including China, Germany, India, Japan, Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or
examination and additional assessments by these particular tax authorities for the calendar year 2003 and thereafter.
We expect the total amount of tax contingencies will grow in 2014. In addition, changes in state, federal, and foreign tax
laws may increase our tax contingencies. The timing of the resolution of income tax examinations is highly uncertain, and the
amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ from the amounts
accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax
authorities or possibly reach resolution of income tax examinations in one or more jurisdictions. These assessments or
settlements may or may not result in changes to our contingencies related to positions on tax filings in years through 2013. The
actual amount of any change could vary significantly depending on the ultimate timing and nature of any settlements. We
cannot currently provide an estimate of the range of possible outcomes.
Note 12—SEGMENT INFORMATION
We have organized our operations into two segments: North America and International. We present our segment
information along the same lines that our Chief Executive Officer reviews our operating results in assessing performance and
allocating resources.
We allocate to segment results the operating expenses “Fulfillment,” “Marketing,” “Technology and content,” and
“General and administrative,” but exclude from our allocations the portions of these expense lines attributable to stock-based
compensation. We do not allocate the line item “Other operating expense (income), net” to our segment operating results. A