Microsoft, in a fresh SEC filing, revealed that it received IRS notices for $28.9 billion in tax dues arising from a decade-long investigation on it’s transfer pricing practices.
While it’s legal, Microsoft argues that the due amount would be reduced significantly under the new tax laws, so it’ll appeal the IRS decision in court. An appeal of such practices would take years to settle.
Microsoft’s Back Taxes to the IRS
In a new SEC filing this week, Microsoft revealed that it owes the US Internal Revenue Service about $28.9 billion in back taxes, resulting from it’s transfer pricing practices.
The said amount is from a series of Notices of Proposed Adjustment(NOPAs) that the IRS sent to Microsoft for the tax years 2004 to 2013 and did not include penalties and interest. Redmond further said that it’s been working with the IRS for nearly a decade to address the authority’s question of distributing it’s profits among countries and jurisdictions, receiving tax-due notices.
More specifically, the back taxes are related to Microsoft’s “transfer pricing“, which legally allows companies to allocate profits and expenses between their operations in different regions. In Microsoft’s case, the company shared the costs of developing some IPs among it’s subsidiaries, eventually offering them profits from these transactions.
Though it’s a legal procedure, critics argue that MNCs often exploit such laws to minimise their taxes in high-tax countries and vice versa. Well, Microsoft said that the issues raised by the IRS are only relevant to those mentioned years and it has changed it’s corporate structure and practices ever since.
Also, the company believes the tax due could be reduced by at least $10 billion under the newer tax laws, so it intends to appeal the IRS decision, as mentioned in the SEC filing. This would typically take years to complete and will even “contest any unresolved issues through the courts” if needed.
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