IRS

KEY TAKEAWAY
Microsoft has been informed by the IRS that it has a tax liability of $28.9 billion for back taxes. The dispute dates back to 2004 when the company was accused of using tax havens to avoid paying taxes on its U.S. profits. Microsoft has expressed its disagreement with the tax adjustments and has stated that it will seek a court ruling if an agreement cannot be reached with the IRS. In a recent filing with the Securities and Exchange Commission (SEC), Microsoft disclosed that the IRS has imposed a fine of $28.9 billion, along with penalties and interest, for taxes related to an audit conducted between 2004 and 2013.

Version 1:
The IRS initiated an audit of Microsoft as part of its efforts to crack down on large corporations that were utilizing offshore tax havens. This action was taken in response to reports by ProPublica and Fortune in 2020, which revealed that Microsoft had transferred “at least $39 billion in U.S. profits” to Puerto Rico in an attempt to avoid taxes. The report further highlighted that the company had secured a tax rate close to 0% through arrangements made by the accounting firm KPMG with the local authorities.

Version 2:
Microsoft has expressed its disagreement with the tax adjustments and has stated that it will pursue an appeal within the IRS. This process is expected to take several years. In the event that the two parties are unable to reach a direct agreement, Microsoft has made it clear that it will take the matter to the courts. Daniel Goff, Microsoft’s corporate VP for worldwide tax and customs, reiterated this stance in a blog post.

Version 3:
In January, Microsoft faced a setback when it lost an appeal in the Seattle federal court. The court denied the company’s request to release over 40,000 IRS documents related to the case. Microsoft had argued that the IRS had deliberately kept its agency records hidden, but the court did not agree with this claim.

Version 4:
The news of Microsoft’s back taxes coincides with the release of a proposal by the Organization for Economic Development (OECD) for a global digital taxation policy. The proposed Multilateral Convention (MLC) framework aims to grant taxing rights to the countries where companies operate, regardless of their corporate domicile. This framework has the potential to impact tech giants such as Amazon, Meta, Apple, and Google. According to a report by the International Monetary Fund, the implementation of this policy could lead to an increase in tax collection by $1.