Microsoft accused of avoiding billions in US taxes

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.

Source: Bloomberg

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M_Lyons10 said,

And Google is a TON worse...

Not sure in the US, but here Google is worse then MS and Apple in skipping European taxes. But theres hundreds of 'letterbox companies' (as we call them) that are only registered here to slide through money on a very low taxrate.
Then again, these companies would go to other countries if we did not offer this solution. They skip many hundreds of billions on taxes in other EU countries, and we gain a few billion off it for free.
For us its a win-win situation (companies settle in our country, pay a lil bit of taxes they normally wouldnt pay due to not settling in our country). But I can imagine other countries could also use that tax money

If this was "Apple accused of avoiding billions in US taxes" people would be hating them haha

fook apple, Microsoft ftw

DanJamesJr said,
And they want us to switch to Bing because Google didn't follow their privacy guidelines. LOL

Yes, because an accusation that may or may not be based in any bit of fact has anything to do with the Bing / Google fight... lol

They're a huge, multi-billion-dollar corporation. It's no surprise they don't want to give anything back to the government (especially when it won't even make a dent in the deficit!). That doesn't make it right, but I'm not outraged or even surprised.

bjoswald said,
They're a huge, multi-billion-dollar corporation. It's no surprise they don't want to give anything back to the government (especially when it won't even make a dent in the deficit!). That doesn't make it right, but I'm not outraged or even surprised.

MS alone wont make a dent, but considering there are hundreds, thousands of companies doing the same.... its many, many billions of USD we're talking about.

Folks - there's a difference between tax avoidance (noted in this article) and tax evasion. Tax avoidance is legal, and I hope every company in the US avoids as many taxes as possible - our government wastes too much of that money to get any more from us. Tax evasion on the other hand, is illegal and any company that does do this, should be brought to justice (and often are.) Who doesn't want to avoid paying more taxes than they have to? Those who do are idiots. Good for Microsoft if they are following the law, and avoiding taxes - it's good for the economy, good for jobs, good for shareholders and good for innovation.

Hollandsmirtz said,
Folks - there's a difference between tax avoidance (noted in this article) and tax evasion.

Only in legal terms. Morally, they're just as bad as eachother. In the end it comes down to how much money a company can spend on accountants. Small businesses don't have much choice in the matter. It's usually the big multinationals that can afford to get creative with offshore entities and such.

I reject your theory of moral equivalency. To assume so, every business should donate all of their profits (or the amount they are comfortable with) towards extra tax liability. That's a little rediculous.

It's all a matter of choice. Small companies should (and do) avoid taxes just as much as big corporations do. Sure, the amounts may differ, but to argue against that point, is to say the mom-and-pop store, is just like a big Microsoft. That too, is not correct. There are lots of different levels of corporate income, corporate ability, and corporate CHOICES on what to spend money on.

By the way, it's interesting what you said - usually the big multinationals... offshore entities. By definition, multinationals hold money "offshore." That's the definition of a multi-national in some sense.

Please be aware that "offshore" accounts are usually taxed at the rate in which country they are held in. For example, Microsoft UK has profits taxed at UK's rates. It's not like they're getting off tax-free by doing business in other countries.

Avoiding or evading? In many respects tax legislation or like computer security. It's like blaming hackers for finding and exploiting your security holes for fun and profit. Only that it's legal.

By all means, reform the tax system sensibly for all companies. Unfortunately, on the scale of a company like Microsoft, Google, Apple, etc., no one of them can choose to voluntarily forgo an extra billion dollars (made-up number) compared to the others, because it ends up being a competitive disadvantage. It doesn't really help anything to single out any one of them.

don't most big companies do this sort of stuff anyways?? heck, even my uncle does it as he owns a small liquor store. they're just loopholes. that's why they exist.

Would you listen to yourselves a bit here? I get *why* some of you think that businesses - especially successful ones - should be taxed more - still, what it really comes down to is that YOU don't want to be taxed more - if at all. Let's get real here - wouldn't YOU use those tax-avoidance strategies if you could? Don't MOST taxpayers (regardless of income) try to pay as little tax as possible? (For example, why do so many of you shop online, as opposed to brick and mortar LOCAL retailers?)

Avoiding the tax man is like the children's game of "It" - NOBODY wants to be "It". (Therefore, you'd rather throw someone ELSE to the tax lions - not yourself.)

Then tackle the tax system in a revenue-neutral way by adopting a FLAT tax that raises no more than the current system (loopholes and all) does - otherwise, it's ALL grandstanding. (No, I'm not JUST talking about the US, either.)

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