Dear Microsoft, You owe us $70m. Love, France

The issue of large corporations paying their taxes has become increasingly contentious in these straitened times. Last month, we reported that Nokia facilities in India had been raided as authorities there accused the company of evading $545m USD (€407.7m EUR / £351.3m GBP) in taxes, while in November 2012, executives from Amazon and Google were brought before the Public Accounts Select Committee in the United Kingdom to answer some very probing questions surrounding their tax payment policies there. 

After Amazon and Google answered to Members of Parliament, Microsoft was named in British media as another company that had allegedly exploited loopholes in legislation to avoid paying as much as £159m ($246.5m / €184.5m) in corporation tax in one year alone. Earlier in the year, Microsoft had also come under scrutiny from French tax authorities, who were investigating the possibility that the company may have evaded some tax payments. 

Further investigations in France have now resulted in tax authorities demanding an adjustment payment of €52.5m ($70.2m / £45.2m) from Microsoft, as BFMTV reports. The issue at hand is that Microsoft France operates as an 'agent' of another Microsoft subsidiary company based in Ireland, and as The Next Web reports, MS France only accounts for a fraction of the total revenue from any products sold there.

To put this another way, MS France sells on behalf of the Irish company, and takes a commission on each sale; this lower amount is then registered as the revenue generated in France, and it is the profits from this lower revenue figure on which the French subsidiary eventually pays tax. The Irish company also pays corporation tax, but at a lower rate than France's 33%.

French authorities have also been investigating whether Microsoft conducts any direct business (i.e. without using the Irish company as an intermediary) in France. 

As a result of their investigations, French authorities are now requiring that Microsoft pay the €52.5m to effectively 'correct' the company's tax payment. It's important to note that this is not the same as a fine or a penalty, but rather an adjustment to top up what France believes to be an underpayment of taxes owed. 

Microsoft told BFMTV that it is disputing France's take on the issues, going on to say that another tax adjustment in France for a different fiscal year will in fact be made in its favour. The French giveth, the French taketh away... 

Source: BFMTV
Via: The Next Web

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Then there is Facebook who made over $1 Billion in profits, and paid no state or federal tax in the US.

From the article (on Foxnews):

"Despite earning more than $1 billion in profits last year, social media juggernaut Facebook paid zilch when it came to federal and state taxes in 2012.

In fact, the website will actually be getting a refund totaling $429 million thanks to a tax reduction for executive stock options.

In the coming years, Facebook will continue to get monster tax breaks, totaling about $3 billion"

It's amazing the number of people who bring morality into discussions of business, law, and taxation. If not paying taxes is legal, then companies will actively try to pay as little tax as possible and still be within the law - they would be foolish not to try and maximize their profit margins legally, especially if the company is public. If a country wants to make this sort of behavior illegal within their borders,, then they should do so. However, they must always be aware that there may be a price to pay for making it more difficult for businesses to take money in as profit by increasing their legal tax burden, including enticing businesses to go about doing business elsewhere.

I am so f!@#ing sick of aholes on this site support these companys that rip the average people off thats money for our future for our kids future. These companys should pay twice just to bring the point home or their products should be banned in that country. Some company willing to do the right thing WILL take their place.

I'm sorry, if these companies paid their morally due taxes or were forced to pay now and from now thereon, prices of their products would surely be "adjusted" as well. There is no future.

McKay said,
These companies are abiding by the law, if they'd illegally not paid taxes I wouldn't defend them.

And if a murderer found a loophole to avoid going to jail would you also defend them? I mean, if they didn't technically break the law they should be defended, right?

Companies need to be made to pay the appropriate amount of tax based upon their operations in a particular country. Currently companies like Microsoft and Google use fake shell companies and complex licensing schemes to pay virtually nothing in tax, instead funnelling it to countries with low tax rates like Ireland, Bermuda and The Netherlands. Such behaviour is clearly not in keeping with the spirit of the law - if not illegal - and should not be tolerated.

Businesses shouldn't be excused for engaging in such practices. Morality shouldn't evaporate every time there's money to be made.

Why is paying an ever-increasing tax-rate created by people who have their own best interests in mind considered immoral?

If it's legal, what's the problem?

Hey, my country benefits from that.
Its amazing how many mailbox offices we have.
Best thing is, this isnt possible for our own companies.. its not worsening our economy, just everyone else's.

theyarecomingforyou said,
Companies need to be made to pay the appropriate amount of tax based upon their operations in a particular country. Currently companies like Microsoft and Google use fake shell companies and complex licensing schemes to pay virtually nothing in tax, instead funnelling it to countries with low tax rates like Ireland, Bermuda and The Netherlands. Such behaviour is clearly not in keeping with the spirit of the law - if not illegal - and should not be tolerated.

Businesses shouldn't be excused for engaging in such practices. Morality shouldn't evaporate every time there's money to be made.


These countries could very easily get this tax revenue (and additional jobs) in their country if they put in place business friendly tax policy. I do not shed a tear for countries that suffer the consequences of business hostle tax policy. They should know better.

Countries should stop looking at companies as the golden goose to support their spending, and instead as the job creators and economic drivers that they are. The fact that so few people understand this just amazes me.

M_Lyons10 said,
Countries should stop looking at companies as the golden goose to support their spending, and instead as the job creators and economic drivers that they are. The fact that so few people understand this just amazes me.

You say that but these companies have an unfair advantage over non-multinational businesses. Of course it's easier for Google and Microsoft to compete when they pay a fraction of the tax that local companies do. Nobody denies that these companies create jobs but I'd rather see the jobs created at companies willing to pay the appropriate level of tax, rather than using incredibly elaborate and immoral workarounds.

Fezmid said,
Why is paying an ever-increasing tax-rate created by people who have their own best interests in mind considered immoral?

Those "people" were elected by the people are represent the will of the country. If voters want businesses to pay a tax rate of 99% then should that not be respected? Just because YOU think the tax rate is too high does not mean that it actually is, nor does it make it acceptable to use extreme workarounds to avoid.

deadonthefloor said,
This is the problem with capitalism.
It's cute that you think entities don't work to avoid paying taxes in anything other than capitalism.

theyarecomingforyou said,
You say that but these companies have an unfair advantage over non-multinational businesses. Of course it's easier for Google and Microsoft to compete when they pay a fraction of the tax that local companies do. Nobody denies that these companies create jobs but I'd rather see the jobs created at companies willing to pay the appropriate level of tax, rather than using incredibly elaborate and immoral workarounds.
I'm sure that everybody who agrees with these statements never writes off anything on their tax returns. They just pay the full amount and toss in an extra percent to make sure the government gets its fair share.
Those "people" were elected by the people are represent the will of the country. If voters want businesses to pay a tax rate of 99% then should that not be respected? Just because YOU think the tax rate is too high does not mean that it actually is, nor does it make it acceptable to use extreme workarounds to avoid.
Sweet jesus the innocence of this statement is blinding. Nothing better than 2 wolves and a sheep sitting down deciding what to do about dinner eh?

And this is exactly why France, Spain, Greece, Ireland, and Italy are bankrupt! Overspending, borrowing too much from other countries, and creating business-hostile tax laws! Why do you think businesses are moving out of these countries to operate in business-friendly countries like Switzerland and Netherlands? For the same reason businesses in America are moving out of California and into more business-friendly states like Texas, Utah, and many other Midwestern states! They aren't going to be taxed to death there! The less a country spends beyond its income and GDP, the less it has to tax. The less businesses are taxed, the more revenue they can keep to invest in their own company, which also keeps prices lower and benefits consumers! Simple economics!

Anthony S said,
And this is exactly why France, Spain, Greece, Ireland, and Italy are bankrupt! Overspending, borrowing too much from other countries, and creating business-hostile tax laws!

That's nonsense, as Ireland has one of the lowest corporation tax rate. Meanwhile Japan has one of the highest corporate tax rates and yet has the third highest GDP, beaten only by the US and China.

theyarecomingforyou said,
That's nonsense, as Ireland has one of the lowest corporation tax rate. Meanwhile Japan has one of the highest corporate tax rates and yet has the third highest GDP, beaten only by the US and China.
Ireland's government took over all the bank debt like a bunch of idiots. They are having serious problems from that.

Something recent on Ireland:
http://online.wsj.com/article/...0904578289921520466036.html

And no offense. But you are seriously bringing up Japan as model economy... you obviously have no idea what you're talking about.

If you want to know what's going on in the world it would do you well to look further than The Daily Show.

if Microsoft had hired people in Ireland instead of France to do the same job remotely, there would be no such tax adjustment to pay.

basically, MS is being taxed 52m€ for having created a few 100s jobs in France.

great way to reward Microsoft for creating jobs in France!
very smart move! This will sure encourage more international companies to hire in this country!

btw, apple is also suspected to do the same thing as MS in France, and yet the fiscal services are still not investigating it.

The thing is, it isn't entirely clear whether it's a net gain for countries when employers create a few hundred jobs but work tirelessly to ensure that tax payments are focused on other countries with lower taxation rates.

Twitter UK Ltd, for example, booked a company-wide profit of just £16,500 in 2011. Hard not to believe that there's some creative accounting behind that figure. Is it enough that a company employs people but works to avoid paying its own taxes in the same country in which those people are employed? What does that do to an economy? How does it help an economy - and other businesses and workers in that economy - to be denied the taxes that would otherwise have been paid had those loopholes not been exploited?

Clearly, there's much that needs to be done to close loopholes. In the last few hours, finance ministers from G20 nations have actually committed to doing just that - http://www.bbc.co.uk/news/business-21481932. But it's naive and unfair to put all of the responsibility on governments for failing to close loopholes; in an age where parts are sourced in one country, assembled in another and sold around the world - and where even services can be outsourced across the globe - it's impractical to assume that all loopholes can be closed. Companies have to be responsible too.

gcaw said,
The thing is, it isn't entirely clear whether it's a net gain for countries when employers create a few hundred jobs but work tirelessly to ensure that tax payments are focused on other countries with lower taxation rates.

Twitter UK Ltd, for example, booked a company-wide profit of just £16,500 in 2011. Hard not to believe that there's some creative accounting behind that figure. Is it enough that a company employs people but works to avoid paying its own taxes in the same country in which those people are employed? What does that do to an economy? How does it help an economy - and other businesses and workers in that economy - to be denied the taxes that would otherwise have been paid had those loopholes not been exploited?

Clearly, there's much that needs to be done to close loopholes. In the last few hours, finance ministers from G20 nations have actually committed to doing just that - http://www.bbc.co.uk/news/business-21481932. But it's naive and unfair to put all of the responsibility on governments for failing to close loopholes; in an age where parts are sourced in one country, assembled in another and sold around the world - and where even services can be outsourced across the globe - it's impractical to assume that all loopholes can be closed. Companies have to be responsible too.

my point is that this move from the French fiscal services is only encouraging companies like Microsoft to move their employees outside of France.

whether it's fair or not to declare most of its French revenues in Ireland is another story.

in the current situation it would be bad for the economy of the country to lose 500jobs, since anyway no tech company is going to declare the totality of its revenue in France (unless the laws prevent them). So, better at least keep the jobs than lose them.

link8506 said,

my point is that this move from the French fiscal services is only encouraging companies like Microsoft to move their employees outside of France.

whether it's fair or not to declare most of its French revenues in Ireland is another story.

in the current situation it would be bad for the economy of the country to lose 500jobs, since anyway no tech company is going to declare the totality of its revenue in France (unless the laws prevent them). So, better at least keep the jobs than lose them.


Exactly. And these countries could very easily get this tax revenue (and additional jobs) in their country if they put in place business friendly tax policy. I do not shed a tear for countries that suffer the consequences of business hostle tax policy. They should know better.

If they're exploiting loopholes doesn't that make it still legal? Not taking into account whether it's morally wrong or not, if it's legal they shouldn't be punished for it, fix the loophole.

Absolutely. No implication here that there's any unlawful actions by Microsoft or anyone else named in the article.

Indeed, that's also why we emphasised the fact that this isn't a penalty or a fine. The payment that France is requesting is an *adjustment*, effectively requesting that Microsoft pay the amount that the French believe the company owes in taxes. Strictly speaking, it isn't punitive.

Exploiting loopholes may be objectionable, but it's still entirely legal.

Not sure about other countries but in the UK there are general laws that prohibit accountants from deliberately using loopholes with the single intent of avoiding taxes. Obviously that is very hard to prove particularly across borders and rarely if even followed up. No doubt thee countries have countless "better" reasons why they do such things, and the tax is merely a "consequence".

Until it has been proven that the accounting is deliberate tax avoidance it is not seen as illegal... however just because there is nothing that says you cant do something doesn't make it explicitly legal. UK law is almost always based around terms such as "reasonable" "fair" etc. etc. and therefore it is often a matter for courts to decide on the nature of the actions of companies and individuals.

Indeed, there's a great deal of room for obfuscation. But just as "innocent until proven guilty" is the basis for prosecution, "legal until proven illegal" is the guidance for matters of taxation.

As you rightly say, it is often a matter for the courts to decide, given how much room there is to manoeuvre in justifying how tax is calculated and paid; until a court rules that actions have been unlawful in some way, we must view and report them as being legal, even if popular opinion condemns them as immoral.