Tuesday, November 16, 2010
IRS Throws in Towel on Closely Watched International Tax Case
Attorneys from Baker & McKenzie in Palo Alto and Chicago are celebrating after beating the IRS in a complicated transfer pricing case that's been closely watched by tech companies and international tax lawyers.
The case involved Cupertino-based Veritas Software Corp., which was acquired by Symantec Corp. in 2005. In 1999, Veritas transferred intellectual property to a wholly-owned subsidiary in Ireland, which paid Veritas $118 million as part of a cost-sharing agreement.
Veritas reported the income in its federal tax returns. The IRS later audited Veritas and said the payment should have been $2.5 billion, 21 times higher. Therefore, Veritas owed the IRS $758 million, as well as additional penalties of $303 million.
Symantec took the case to the U.S. Tax Court, and on Dec. 10, 2009, the court sided with Symantec, saying the company owed no further taxes, interest, or penalties. [Veritas v. Commissioner, 133 T.C. No. 14 (Dec. 10, 2009)]
The IRS had until Monday to initiate an appeal, but did not do so. It did, however, issue a six-page "Action on Decision" saying that the tax court's "factual findings and legal assertions are erroneous." [A.O.D. 2010-05, 2010 I.R.B. ___ (Dec. 6, 2010)]