Microsoft CEO Satya Nadella. Drew Angerer/Getty Images
Microsoft will appeal a decision by the U.S. Internal Revenue Service that the software maker owes at least $28.9 billion in taxes related to the way it allocated revenue and expenses among global subsidiaries between 2004 and 2013.
The company said in a regulatory filing Wednesday that it disagreed with the “notice of proposed restatement” of its federal tax returns and would appeal the decision.
The dispute centers on a 2012 IRS audit of transfer pricing, a method companies use to shift profits to tax havens and avoid the U.S. corporate tax rate. At the time, Microsoft had shifted billions of dollars in profits to jurisdictions like Puerto Rico, a U.S. territory that charges a much lower corporate tax rate.
The company has changed its corporate structure and practices since the years covered by the audit, so the questions raised by the IRS are not relevant to the way it currently records revenue, Microsoft Vice President Daniel Goff said in a blog post .
Goff wrote that Microsoft has been working with the IRS for nearly a decade to answer questions about how the company allocates income and expenses for tax purposes. The Redmond, Washington-based company said the proposed $28.9 billion additional tax bill does not include taxes paid under the 2017 Tax Cuts and Jobs Act, increasing the total amount by up to $10 could reduce billions of US dollars.
“We firmly believe that we have acted consistent with IRS rules and regulations and that our position is supported by case law,” Goff said in the post. “We welcome the completion of the IRS review phase, which gives us the opportunity to address these issues through IRS Appeals, a separate division of the IRS responsible for resolving tax disputes.”
Microsoft shares were little changed in extended trading after closing at $332.42 in New York.