Microsoft Tax Evasion

posted by Roy Schestowitz on Oct 12, 2023,
updated Oct 29, 2023

• Microsoft vows to fight after IRS slaps it with $29B tax bill

  In a securities filing and blog post today, Microsoft revealed it’s planning to contest an IRS request to pay an additional $28.9 billion in taxes, plus interest and penalties, that cover a 10-year period from 2004 to 2013.

  The IRS reportedly ordered Microsoft to pay the amount after conducting a multiyear audit into its past accounting affairs. It’s said that the agency had issues with how Microsoft allocated its profits among various countries and jurisdictions over the period in question.

• Hell no, we won’t pay, says Microsoft as Uncle Sam sends $29B bill for back taxes

  More specifically, the IRS describes it as “prices charged by one affiliate to another, in an intercompany transaction involving the transfer of goods, services, or intangibles, yield results that are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances.”

  Transfer pricing is legal, though when it sees revenue shifted to low-tax jurisdictions it can be considered abusive.

Update

A couple more:

• IRS says Microsoft may owe more than $29 billion in back taxes; Microsoft disagrees

  The Internal Revenue Service says Microsoft owes the U.S. Treasury $28.9 billion in back taxes, plus penalties and interest, the company revealed Wednesday in a securities filing.

  That figure, which Microsoft disputes, stems from a long-running IRS probe into how Microsoft allocated its profits among countries and jurisdictions in the years 2004 to 2013. Critics of that practice, known as transfer pricing, argue that companies frequently use it to minimize their tax burden by reporting lower profits in high-tax countries and higher profits in lower-tax jurisdictions.

  Microsoft, which is based in Redmond, Washington, said it followed IRS rules and will appeal the decision within the agency, a process expected to take several years. The company’s shares dropped slightly in aftermarket trading, falling $1.42 to $331.

• IRS tells Microsoft it owes $29 billion in back taxes - The Verge

  Microsoft is in a dispute with the IRS over back taxes the agency says it owes for years 2004 through 2013.

Mainstream media:

• IRS says Microsoft owes an additional $29 billion in back taxes

  Microsoft said the IRS notified the company it owes an additional $28.9 billion in back taxes.

3 more:

• Microsoft and the US tax authority have at least a $10 billion discrepancy in their back tax calculation

  $39 billion: US profits Microsoft shifted to US territory Puerto Rico, where the firm’s consultancy, KPMG, had persuaded the government to award Microsoft a nearly 0% tax rate.

• Microsoft May Owe $28.9 Billion in Back Taxes to the IRS

  The 8-K filing comes after the IRS announced last month that it was adding AI tools to identify potential tax evasions, according to a press release. The IRS said at the time that it was focusing on wealthy taxpayers, including companies, that used “sophisticated schemes to avoid taxes” and would identify individuals with more than $250,000 in recognized tax debt.

• The IRS says Microsoft may owe about $29 billion in back taxes, but the company disagrees

  The IRS began an audit of Microsoft in 2007 that the agency described in federal court documents last year as “one of the largest in the Service’s history.” Microsoft says it was recently notified by the IRS that the audit has ended, starting a new process to resolve a dispute over how much is owed.

  Part of the long-running IRS investigation centered on how Microsoft structured a manufacturing facility starting in 2005 in the U.S. territory of Puerto Rico. The IRS has said Microsoft hired accounting firm KPMG to set up a cost-sharing arrangement with the Puerto Rican affiliate that shifted taxable revenue out of the U.S.

Pro Publica:

• Why the IRS Says Microsoft Owes $29 Billion in Back Taxes

  In a long-awaited development, the largest audit in the history of the IRS has finally taken its next step. On Wednesday, Microsoft announced that the agency had notified the company that it owes $28.9 billion in back taxes, plus penalties and interest.

  The case is epic not only in dollars but in scope. As ProPublica reported in an in-depth narrative in 2020, the IRS saw the case as a chance to prove the agency’s effectiveness. Often cowed by the prospect of facing off against corporations with endless resources, the IRS set out to be bolder and more aggressive. It took the unusual step of hiring a corporate law firm to represent the agency, a step that incensed Microsoft. The company, along with others in its industry, responded by rallying allies in Congress to rein in the IRS.

Several more:

• 2023-10-12 [Older] Microsoft reveals IRS notice asking for $28.9 billion in back taxes

• 2023-10-13 [Older] Microsoft owes $29B in unpaid taxes, IRS claims

• 2023-10-13 [Older] Pluralistic: Microsoft put their tax-evasion in writing and now they owe $29 billion; The Lost Cause prologue, part 6 (13 Oct 2023)

• 2023-10-12 [Older] IRS Says Microsoft May Owe More Than $29 Billion in Back Taxes; Microsoft Disagrees

Futurism:

• The IRS Says Microsoft Owes More in Back Taxes Than It Invested in OpenAI

  The tax adjustments, the corporate VP for taxes wrote, are the result of a now-closed IRS audit related to Microsoft's former financial dealings.

  [...]

  It's striking that the tax bill is nearly three times the size of Microsoft's $10 billion OpenAI investment from the beginning of 2023, which was officially announced mere days ahead of massive job cuts.

More details:

• Why Microsoft owes the IRS $29 billion in taxes

  Microsoft had a small factory in Puerto Rico that burned software onto CDs. That factory then somehow paid $31 billion over 10 years for the rights to all that software, and in return received all the profits — some $70 billion. Thanks to a deal with the Puerto Rico government, it paid almost no tax on that $70 billion.