USA: IRS Demands $29 Billion From Microsoft

The complex relationship between the Big Tech world and governments is adding a new chapter in the United States. The Internal Revenue Service (IRS), the US tax authority, has asked Microsoft for $29 billion in taxes that the Redmond giant underpaid from 2004 to 2013.

The reaction by Microsoft was not long in coming: “We firmly believe that we acted in accordance with IRS rules and regulations and that our position is supported by case law. It is important to note that the IRS appeal process will take several years. If we are unable to reach a direct agreement with the IRS, Microsoft will have the opportunity to challenge the outstanding issues in court.” In any case, the company explains that they want to continue cooperation with the IRS and will be able to work out agreements in the coming years. “We will also continue to share new information about important developments in our quarterly and annual public and financial reports, as we have done throughout this process. As of September 30, 2023, we believe that our income tax reserves are sufficient.”

The IRS points out how Microsoft distributes profits among various international jurisdictions. The practice of cost sharing is constantly used by multinational companies. Essentially, revenues are “diverted” to low-tax countries to maximize profits and instead avoid the tax regulations of major markets.

According to Microsoft, “many large multinational corporations use cost sharing because it reflects the global nature of their business. Because our subsidiaries shared the costs of developing certain intellectual property, in accordance with IRS cost-sharing rules, the subsidiaries were also entitled to related profits.”

A similar case in 2016 led to the EU demanding $14 billion in tax refunds from Apple. However, the appeal ruled in favor of the Cupertino company, and a new decision is now being considered.