Amazon.com 2006 Annual Report Download - page 79

AMAZON.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 12—INCOME TAXES
Cash taxes paid were $15 million, $12 million, and $4 million for 2006, 2005, and 2004.
The items accounting for differences between income taxes computed at the federal statutory rate and the
provision (benefit) recorded for income taxes are as follows:
Year Ended December 31,
2006 2005 2004
Federal statutory rate ..................................................... 35.0% 35.0% 35.0%
Effect of:
Valuation allowance ............................................. (2.6) (31.1) (102.2)
Cost of restructuring international operations .......................... 16.0 15.1 —
Other, net ...................................................... 1.2 3.3 1.8
Total ...................................................... 49.6% 22.3% (65.4)%
The effective tax rate in 2006 is higher than the 35% statutory rate resulting from steps we initiated to
establish our European headquarters in Luxembourg. Associated with the establishment of our European
headquarters, we transferred certain of our operating assets in 2005 and 2006 from the U.S. to international
locations. These transfers resulted in taxable income and exposure to additional taxable income assertions by
taxing jurisdictions.
Included in the 2005 provision and reducing the impact of the international restructure is a tax benefit of $90
million, resulting from certain of our deferred tax assets becoming more likely than not realizable. This tax
benefit represented $0.22 and $0.21 of basic and diluted earnings per share.
We recorded a tax benefit of $244 million in 2004, representing $0.60 and $0.57 of basic and diluted
earnings per share, and a credit to stockholders’ equity of $106 million as we determined that certain of our
deferred tax assets were more likely than not realizable.
We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is
required in evaluating our tax positions and determining our provision for income taxes. During the ordinary
course of business, there are many transactions and calculations for which the ultimate tax determination is
uncertain. We are subject to audit in various jurisdictions, and certain jurisdictions may assess additional income
tax against us. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to
which, additional taxes will be due. These reserves are established when we believe that certain positions might
be challenged despite our belief that our tax return positions are fully supportable We adjust these reserves in
light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes
includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The components of the provision (benefit) for income taxes, net were as follows:
Year Ended December 31,
2006 2005 2004
(in millions)
Current taxes:
U.S. and state ....................................... $162 $16 $ 12
International ........................................ 3 9 12
Current taxes .................................... 165 25 24
Deferred taxes ........................................... 22 70 (257)
Provision (benefit) for income taxes, net .......... $187 $95 $(233)
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