I’ve written a lot about brand valuation and how many businesses under-value their brands. Now one of the most powerful brands, Amazon, claim their brand isn’t worth that much.
One issue with brand value is its contentious status so far as balance sheets are concerned. Although a good deal of work has been done to standardise brand valuation in accounting practices, it usually only becomes manifest on sale, acquisition or transfer. This is just where Amazon came unstuck and found itself in the US Tax Court.
There has been a good deal of discussion concerning international corporate giants using subsidiaries overseas to make the most effective use of favourable tax environments. Like Starbucks and Google, Amazon followed a well-worn path to Europe – Luxembourg to be precise. So far so good.
Obviously the Amazon brand was important as the parent company transferred some of the associated intellectual property to the subsidiary for a fee. However, in the view of the IRS, the fee was not enough. Amazon undervalued their own brand!
Why would they do this? Simply to reduce their tax bill in the US choosing a move favourable regime in Europe.
The details are now the meat of argument for the tax lawyers. For brand specialists and marketers it presents some important issues. The trial should aid the clarification and status of brand valuation. Moreover, it should help identify the position of a brand and its associated intellectual properties as corporate assets.
If Amazon succeeds in defending its own low valuation, it would be interesting to see how it would argue reversing that position should it wish to sell.
This case will be watched with interest, not by just accountants and tax lawyers but also by brand owners and marketers.