Microsoft has been accused of avoiding $6.5bn in taxes (over three years) by using a complex set of transactions with offshore subsidiaries located in Puerto Rico, Ireland, Singapore and Bermuda. The memo, issued by US Senator Carl Levin, did not accuse Microsoft of doing anything illegal, but simply put that they are using a loophole to domestic funds using non-traditional channels.
Senator Carl Levin said that by using these loopholes, the tax burden is placed onto US citizens:
These loopholes and abuses exact a tremendous cost,” Levin told reporters at a briefing today. “What these gimmicks do is shift the burden of taxes onto citizens and business who don’t use armies of lawyers and accountants.”
Microsoft is not the only company to use loopholes for gaming the tax system, Google has been accused of tax avoidance in the past and Apple has done the same too. While none of the acts are considered illegal, the transactions are typically abnormal in the workflow process and are designed to specifically avoid taxes.
Microsoft, like Apple and Google, are doing this to save money and help keep cash in its own pockets using legal transactions; hard to blame them despite it appearing to be unethical.
Microsoft sent Neowin the following statement based on Bill Sample's testimony:
Microsoft has a complex business and we must comply with the complicated tax code of the United States, resulting in an exceedingly complex tax structure. That is why we've advocated for reforms to simplify the US tax code and make it more competitive with the rest of the world.
One of the business imperatives faced by Microsoft and many US-based businesses today is that we must operate in foreign markets in order to compete and succeed as a company. Foreign revenue growth helps support the growth of our U.S. operations, creating additional U.S. jobs and supporting an economic ripple effect that leads to greater growth in local communities. Our foreign growth has allowed Microsoft to increase our footprint in the U.S.
According to a recent study of Microsoft's economic impact, we increased our employment by 13.2 percent in the United States from 2007 and 2009. Through our employment, compensation, and purchases of U.S. goods and services, Microsoft's operations supported roughly 462,000 U.S. jobs. In Washington State specifically, Microsoft has been the single largest contributor to economic growth since 1990; our impact on the state accounted for 32.4 percent of the total gain in state employment.
To compete and grow, we operate a global business that requires us to operate in foreign markets. In conducting our business at home and abroad, we abide by U.S. and foreign tax laws. That is not to say that the rules cannot be improved--to the contrary, we believe they can and should be. US international tax rules are outdated and not competitive with the tax systems of our major trading partners. We believe the US should reform its tax rules to support the ability of worldwide American businesses to compete in global markets and invest in the US.