Amazon Inc., BEPS, and the New Method of Risk Allocation: Comparing U.S. Jurisprudence and OECD Approaches to Risk Allocation in the Post-BEPS Era of Transfer Pricing

Will the United States Tax Court apply Action 9’s recommendations regarding risk allocation for transfer pricing purposes? In short, no. The U.S. Tax Court will not apply the OECD BEPS Action 9 Recommendation regarding risk allocation for three reasons. (1) Two Constitutional reasons: (a) the Constitutional cavalcade of hierarchy regarding international law in the United States—much less the precedential value of a secondary source, such as OECD reports. (b) The concept of stare decisis that is embedded in the common law system of the Anglo-American tradition relies on cases being decided as they have been decided in the past. The tradition of upholding prior precedent is not easily broken—except for egregious reasons, such as regarding slavery. (2) Given the status of international law and international secondary sources in the United States in addition to the concept of stare decisis, the U.S. Tax Court—as all courts in the United States—consistently build on judicial application of law. Four key transfer pricing cases since the 1986 transfer pricing tax reforms in the United States will be shown to support the concept of stare decisis. (3) Finally, the most recent transfer pricing case—Amazon—shows that the Court still upholds the prior precedential cases through stare decisis. Moreover—and perhaps more importantly in the international context regarding other countries’ decision to implement Action 9—had the IRS brought the argument of Action 9 forward, not only would the entire case would have been analyzed differently, but the prospect of bringing Action 9’s reasoning forward, the IRS would have for forfeited all claims to the pricing of the transferred intellectual property (IP) to the “empty company”—as will be shown later.