Amazon.com 2015 Annual Report Download - page 76

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The reconciliation of our tax contingencies is as follows (in millions):
December 31,
2015 2014 2013
Gross tax contingencies – January 1 $ 710 $ 407 $294
Gross increases to tax positions in prior periods 254 351 78
Gross decreases to tax positions in prior periods (22) (50) (18)
Gross increases to current period tax positions 242 20 54
Audit settlements paid
—
(16) (1)
Lapse of statute of limitations (3) (2)
—
Gross tax contingencies – December 31 (1) $ 1,181 $ 710 $407
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(1) As of December 31, 2015, we had $1.2 billion of tax contingencies, of which $882 million, if fully recognized, would
decrease our effective tax rate.
As of December 31, 2015 and 2014, we had accrued interest and penalties, net of federal income tax benefit, related to
tax contingencies of $59 million and $41 million. Interest and penalties, net of federal income tax benefit, recognized for the
years ended December 31, 2015, 2014, and 2013 was $18 million, $8 million, and $8 million.
We are under examination, or may be subject to examination, by the Internal Revenue Service (“IRS”) for the calendar
year 2005 and thereafter. These examinations may lead to ordinary course adjustments or proposed adjustments to our taxes or
our net operating losses with respect to years under examination as well as subsequent periods. As previously disclosed, we
have received Notices of Proposed Adjustment from the IRS for transactions undertaken in 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 of approximately $1.5 billion, subject to interest. To date, we have not resolved this
matter administratively and are currently contesting it in U.S. Tax Court. We continue to disagree with these IRS positions and
intend to defend ourselves vigorously in this matter. In addition to the risk of additional tax for 2005 and 2006 transactions, if
this litigation is adversely determined or if the IRS were to seek transfer pricing adjustments of a similar nature for transactions
in subsequent years, we could be subject to significant additional tax liabilities.
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 and thereafter. These examinations may lead to ordinary course
adjustments or proposed adjustments to our taxes. In September 2012, we received proposed tax assessment notices for
calendar years 2006 through 2010 relating to the allocation of income between foreign jurisdictions. In June 2015, we received
final tax collection notices for these years assessing additional French tax of €196 million, including interest and penalties
through September 2012. We disagree with the 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. In addition to the risk of additional tax for years 2006 through 2010, if this litigation is adversely determined or if the
FTA were to seek adjustments of a similar nature for subsequent years, we could be subject to significant additional tax
liabilities. In addition, in October 2014, the European Commission opened a formal investigation to examine whether decisions
by the tax authorities in Luxembourg with regard to the corporate income tax paid by certain of our subsidiaries comply with
European Union rules on state aid. If this matter is adversely resolved, Luxembourg may be required to assess, and we may be
required to pay, additional amounts with respect to current and prior periods and our taxes in the future could increase. We are
also subject to taxation in various states and other foreign jurisdictions including Canada, China, Germany, India, Japan,
Luxembourg, and the United Kingdom. We are under, or may be subject to, audit or examination and additional assessments in
respect of these particular jurisdictions for 2003 and thereafter.
We expect the total amount of tax contingencies will grow in 2016. 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 2015. 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.