Microsoft owes Denmark $1 billion in tax

In 2002, Microsoft purchased Navision from the Danish firm Navision A/S for around 5.6 billion kroner ($1.3 billion). Navision was later turned into Microsoft Business Solutions (later rebranded Microsoft Dynamics NAV), one of the most profitable parts of the Microsoft empire. Shortly after Microsoft purchased Navision, they moved the legal rights to Ireland in an attempt to cut down on tax expenditure. 

A report (Google Translate) by Danish news outlet, DR Forsiden, has shown that Microsoft could be asked by the Danish government for up to $1 billion in tax from the Navision deal. Lars Kiertzner, a professor at the Copenhagen Business School and an expert on accounting, described the case as "remarkable", before saying it's "definitely one of the biggest [they've] seen." The report goes on to say that all the accounting was handled by Microsoft US, with the Danish arm having very little do with it. In an effort to avoid tax, Microsoft set the value of the company too low. 

Microsoft moved Navision's legal rights to Ireland, which has a lower rate of tax, something the Danish authorities are none to pleased about. Navision as an Irish company is partly owned by companies in Bermuda and the British Virgin Islands, which are both tax havens. Microsoft's Dynamics NAV divisions employes 600 people in Denmark, with an annual revenue of about $1.8 billion, roughly 2.3% of Microsoft's total yearly revenues

Microsoft has been estimated to have avoided $707 million in tax over the past 13 years in the US. 

Source: DR Forsiden (Google Translate) 

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Loopholes are all good till your hated company of the month is the one taking advantage of it, then it's "evil" that the company doesn't "pay it's fair share" and a bunch of other trite marxist ideology

Is it all good until a your hated company does it.

Or is it all bad until your favority company does it ?

IMO it's always bad. Some loopholes are okay. But these days there's too much of them. And most of them can be used by big corporations only.

There is no company I "like" (as in, being a fan) -- I used to, but one eventually grows up.

I might dislike a company's leadership and another company's market strategy, but international tax optimisation is a result of globalisation at the times we live in, and those companies are in their right to benefit from it.

z0phi3l said,
Loopholes are all good till your hated company of the month is the one taking advantage of it, then it's "evil" that the company doesn't "pay it's fair share" and a bunch of other trite marxist ideology

Taxation is as marxist as it gets. So it is the concept of a central bank.

The international tax system needs to be radically overhauled. The simplest way would be for businesses to be required to pay a fixed percentage in tax based upon their earnings in a particular territory - if a Danish firm is bought then there should be a Danish tax; if the British arm of a company earns money then it should be taxed in Britain. A company like Google or Microsoft shouldn't be able to hide profits by funnelling profits through countries / territories like Ireland and Bermuda.

As it stands international companies can effectively avoid paying tax in many countries, which gives them an unfair advantage over national businesses. Take Twitter, for example - it posted a profit of just £16,500 in the UK, despite earning millions in advertising. It's no surprise then to see the parent company is based in Ireland, where they don't have to post accounts. These companies are screwing over taxpayers.

theyarecomingforyou said,
The international tax system needs to be radically overhauled. The simplest way would be for businesses to be required to pay a fixed percentage in tax based upon their earnings in a particular territory - if a Danish firm is bought then there should be a Danish tax; if the British arm of a company earns money then it should be taxed in Britain. A company like Google or Microsoft shouldn't be able to hide profits by funnelling profits through countries / territories like Ireland and Bermuda.

As it stands international companies can effectively avoid paying tax in many countries, which gives them an unfair advantage over national businesses. Take Twitter, for example - it posted a profit of just £16,500 in the UK, despite earning millions in advertising. It's no surprise then to see the parent company is based in Ireland, where they don't have to post accounts. These companies are screwing over taxpayers.

Twitter is an excellent example of exploiting people in need to maximize profits. Countries and territories like Ireland, Bermuda, Luxembourg and Cyprus virtually depend on that money flowing into their country. It's the same with Swiss bank accounts, of course their not going to close that loop hole where pretty much all criminal money is stored because they need the cash!

It's not just the big companies doing this though is another part of the problem.

Super rich ding bats like Mitt Romney, for example, do exactly the same thing! And he wonders why he lost the election?! I mention this because I just read a story on why he and his wife think they lost and poor ol' Mitt is mad he's not in the White House fixing things!

Right, so you buy something for $130 and the government taxes you $100 for it, you would bitch and complain. If you honestly wouldn't complain then you have too much money anyway. You are looking at a corporation as if it is one person when in fact it is thousands of people working. Leave it to ass clowns like you to always harp on conservative candidates too, instead of ever bringing up a liberal of evading taxes. Go look it up for yourself, I bet you'll find they are just as guilty. Oh and Obama hasn't fixed jack ****, nor has he made a budget in four years. Yes yes, he is so great.

SpeedyTheSnail said,
Right, so you buy something for $130 and the government taxes you $100 for it.

Except no-one is saying this is the case, it's only the case if you haven't bothered to read the full article or you don't understand economics a little.

When it comes to users, Microsoft and others like Movie studios are so much vocal about piracy hurting society jobs and all that..

When it comes to pay their own money for society as TAX, they avoid.. Their moral is screwed up..

How true indeed, again it's always the little man who still has to pay full whack, while corporations have enough money to research into paying less than their fair share.

Neobond said,
How true indeed, again it's always the little man who still has to pay full whack, while corporations have enough money to research into paying less than their fair share.
Exactly. If you or I didn't pay tax like this, we'd be sent to prison.

maxslaterrobins said,
Exactly. If you or I didn't pay tax like this, we'd be sent to prison.

Indeed. If I walked into a bank and robbed a couple of grand I'd be given a harsh prison sentence; when bankers do the same with billions they simply have their bonuses reduced. The financial sector engaged in massive fraud that literally collapsed the economy yet virtually nothing was done to bring them to justice. The same is happening with businesses and taxes, while governments put the squeeze on lower income earners through reduced incomes and cuts in tax support.

theyarecomingforyou said,

Indeed. If I walked into a bank and robbed a couple of grand I'd be given a harsh prison sentence; when bankers do the same with billions they simply have their bonuses reduced. The financial sector engaged in massive fraud that literally collapsed the economy yet virtually nothing was done to bring them to justice. The same is happening with businesses and taxes, while governments put the squeeze on lower income earners through reduced incomes and cuts in tax support.

In some cases their bonuses are even increased

Choto Cheeta said,
When it comes to users, Microsoft and others like Movie studios are so much vocal about piracy hurting society jobs and all that..

When it comes to pay their own money for society as TAX, they avoid.. Their moral is screwed up..

seems like you're preaching to the choir, lol. but whats funny to me is that i'm sure if you had to chance to lower your taxes in a legal way (loophole) you would take it. it would seem its the same thing Microsoft did: used a loop hole.

THIS is totally different from movie piracy which is down right theft.

ctrl_alt_delete said,
seems like you're preaching to the choir, lol. but whats funny to me is that i'm sure if you had to chance to lower your taxes in a legal way (loophole) you would take it. it would seem its the same thing Microsoft did: used a loop hole.

And if a murderer found a loophole to avoid punishment would that be equally justifiable? What these companies are doing is immoral and should be illegal, if it isn't already. It's not excusable.

ctrl_alt_delete said,
THIS is totally different from movie piracy which is down right theft.

Associating piracy with "theft" is quit ignorant imo...

If I steal something from you, say a car, I cause financial damage to you, while ofc I get a bit of something from it. Anyway, you lose your car.

On the other hand, if I pirate a movie, it causes no cash flow at all. Meaning, I don't spend cash, the owner doesn't lose anything (he still has his movie, and it doesn't cost anything to "get over it"). The owner may not even notice in any way that I pirated the movie.

Now, if I bought the movie instead the owner would have profit. But that's kind of like saying "window shopping is theft, since I didn't walk into the store and bought something".

Keep in mind that most pirate digital content because they don't really have a choice: they don't have money to buy it (or don't have a chance to get it otherwise), so without piracy they just wouldn't get it at all. (most choose to buy the products given the chance).
On the other hand, piracy provides publicity that in most cases outweighs the negatives: i pirate a movie and like it, recommend it to my friends, some of them buy it; I pirate "Office" for years, get hooked, later buy it for my company...

[I'm not saying that piracy is all good and should be embraced... just saying that it's a necessary "evil", and not all bad either]

ctrl_alt_delete said,

THIS is totally different from movie piracy which is down right theft.

No it's not.

It's called copyright infringement.

Torolol said,
tax evasion in French, Denmark, what else?

No wonder E.U are kinda hostile to MS

Hey it's not just MS! Pretty much every company operating in the EU tax evades- IBM, Oracle etc. If it's open they will do it. Another thing is that these companies are not directly paying these earnings taxes but they are providing work, infrastructure and often supporting careers for graduated students. The EU scrooging MS is nothing more than an indirect tax on its own people, MS pays EU, EU member pay more for MS services. It's a tricky area and definitely one that needs to be redone but the fact is that some of these countries practically depend on these massive American TNCs to provide work and services so by forcing to pay these taxes they could jack some up the wrong pole and be worse off then before.

All the big companies do it.

For example Apple owe £570 million in UK tax for the year 2011 alone. Apple do the same thing as MS by going through Ireland to avoid tax.

Google owe £224m tax for the same year. And the list goes on and on...

1Pixel said,

For example Apple owe £570 million in UK tax for the year 2011 alone. Apple do the same thing as MS by going through Ireland to avoid tax.

The problem is that this isn't the wildly-profitable iPhone or Windows. It's Navision. The Danish may have a hard time believing it, but it is at least plausible that Navision is not making much of a profit.

Navision was part of Microsoft Business Solutions from 2002-2006. During the entire time, MBS hovered around breakeven, and never turned much of a profit. In some years, it made a loss.

In 2007, the MBS division got broken up, and Navision moved to the Server & Tools division. Unfortunately, that means that its financial figures are diluted in a much larger and much more profitable division.

But we can guess, using a very roundabout method. If you check Microsoft's recent earnings call transcripts, for example, the CFO keeps mentioning that Dynamics revenue grew low double-digits and that Dynamics CRM grew 30%. "Low double digits" is code for 10-15% -- if it were any higher, they'd be proudly proclaiming "nearly 20%" -- and CRM today makes up about 30% of Dynamics revenue. That suggests that the other Dynamics products (including Navision) grew by 1-6%.

All of MBS had $2 billion of revenues in 2006. Suppose Navision made up 70% of that, and grew by 5% each year for the next 6 years. We get $1.88 billion, which is about 10.8 billion krone. That is very close to the 10 billion krone in revenues that Microsoft claims it generated from Navision last year. It is nowhere near the 21 billion krone that the article claims Microsoft should've recorded.

The Google Translation states that neither Microsoft nor the Danish tax agency discussed the matter with the reporter. The entire article seems to be based on anonymous sources and one professor.