U.S. tax authorities are seeking $28.9 billion (C$39.56 billion) from Microsoft for unpaid amounts between 2004 and 2013, plus interest and penalties, as governments seek to crack down on multinational corporations’ tax avoidance practices.
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“We disagree,” Microsoft responded in a stock market filing published Wednesday, “and we will vigorously contest the IRS’s conclusions.”
Microsoft says it will first appeal to the IRS and even initiate legal proceedings later if necessary.
“It is important to note that the IRS appeal process will take several years and if we do not reach a direct settlement with the IRS, Microsoft will then have the opportunity to challenge the unresolved issues in court,” emphasizes Daniel Goff, the company’s CEO Vice President, responsible for international tax issues.
He says the dispute concerns the distribution of its profits between countries and jurisdictions between 2004 and 2013. He estimates that the IRS failed to account for up to $10 billion in taxes already paid by Microsoft.
“We believe that we have always (…) paid the taxes that we owed in the United States and around the world,” he emphasizes.
The parent company of Windows and Xbox said the IRS claim was the result of discussions over a decade “to answer questions about how we allocated our income and expenses for tax years beginning in 2004.”
Microsoft claims to have changed its approach since the audit.
“Therefore, the questions raised by the IRS are relevant to the past but not to our current practices,” the group added.
“Since 2004, we have paid more than $67 billion in taxes in the United States,” he adds.
When contacted by AFP, the US tax authority said it could neither confirm nor deny the existence of disputes.
Microsoft had revenue of $212 billion (C$290 billion) in its most recent fiscal year (ended June 30, 2023), of which more than $72.4 billion (C$99 billion) generated net profits.
According to the stock exchange document, Microsoft considers its provisions for tax risks to be “sufficient” at this point in time.
“We do not expect a final resolution to these issues within the next 12 months. “Based on the information currently available, we do not expect a significant increase or decrease in our tax provisions for these matters in the next 12 months,” specifies the technology group.
Taxation of multinational companies, from oil majors to tech giants, is generating much controversy and litigation as authorities try to close the loopholes but large corporations are experts in tax optimization.
Governments have accused companies like Apple, Amazon and Microsoft of funneling their revenues through low- or zero-tax jurisdictions to avoid paying taxes.
In Europe, Apple and Brussels are fighting over billions of dollars in tax benefits that the iPhone manufacturer received in Ireland, but which the European Commission classified as illegal.
The OECD (Organization for Economic Co-operation and Development) published a draft agreement on Wednesday that aims to distribute tax revenues from the profits of large multinational companies, particularly in the field of digital technology, more fairly between states.
This “multilateral agreement” is not yet open for signature by states, although certain countries, including India, Brazil and Colombia, still have reservations on certain points. However, the OECD hopes that it will be ratified by the end of the year.
At the same time, the United States is also trying to redefine technology companies whose economic clout translates into significant political power.
Government, states and the competition regulator are leading the charge on various fronts, from monopolies to protecting user privacy, with mixed results.
Washington, for example, had to give up trying to prevent Microsoft’s ongoing takeover of the video game studio Activision Blizzard.