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...