Amazon.com 2012 Annual Report Download - page 37

Income Taxes
Our effective tax rate is subject to significant variation due to several factors, including variability in our
pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, changes in how we do
business, acquisitions (including integrations) and investments, audit developments, foreign currency gains
(losses), changes in law, regulations, and administrative practices, and relative changes of expenses or losses for
which tax benefits are not recognized.
We recorded a provision for income taxes of $428 million, $291 million, and $352 million in 2012, 2011,
and 2010. Our effective tax rate in 2012, 2011, and 2010 is significantly affected by two factors: the favorable
impact of earnings in lower tax rate jurisdictions and the adverse effect of losses incurred in certain foreign
jurisdictions for which we may not realize a tax benefit. Income earned in lower tax jurisdictions is primarily
related to our European operations, which are headquartered in Luxembourg. Losses incurred in foreign
jurisdictions for which we may not realize a tax benefit, primarily generated by subsidiaries located outside of
Europe, reduce our pre-tax income without a corresponding reduction in our tax expense, and therefore increase
our effective tax rate. We have recorded a valuation allowance against the related deferred tax assets.
In 2012, the adverse impact of such foreign jurisdiction losses was partially offset by the favorable impact
of earnings in lower tax rate jurisdictions. Additionally, our effective tax rate in 2012 was more volatile as
compared to prior years due to the lower level of pre-tax income generated during the year, relative to our tax
expense. Our effective tax rate in 2012 was also adversely impacted by acquisitions (including integrations) and
investments, audit developments, nondeductible expenses, and changes in tax law such as the expiration of the
U.S. federal research and development credit at the end of 2011. These items collectively caused our annual
effective tax rate to be higher than both the 35% U.S. federal statutory rate and our effective tax rates in 2011 and
2010. These items may also cause our effective tax rate in 2013 to be higher than the 35% U.S. federal statutory
rate.
In 2011 and 2010, the favorable impact of earnings in lower tax rate jurisdictions offset the adverse impact
of foreign jurisdiction losses and, as a result, the effective tax rate in both years was lower than the 35% U.S.
federal statutory rate.
We have tax benefits relating to excess stock-based compensation deductions that are being utilized to
reduce our U.S. taxable income. As of December 31, 2012, our federal net operating loss carryforward was
approximately $89 million. We also have approximately $136 million of federal tax credits potentially available
to offset future tax liabilities.
In January 2013, legislation was enacted to extend the federal research and development credit and other
favorable tax benefits through December 31, 2013. As a result, we expect that our income tax provision for the
first quarter of 2013 will include a discrete tax benefit for the research and development credit and other
favorable tax benefits that were extended retroactively to January 1, 2012.
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