Microsoft fined $140 million in China over a similar issue that was investigated by the IRS

Microsoft has been fined in China for tax evasion relating to cross-border tactics that have become quite popular in the US. The information comes from China's Xinhau news agency and while Microsoft was not specifically named, the description of the company that was fined makes it the only candidate who fits the context.

The agency described the company who was fined as starting with the letter 'M' and is a wholly-owned subsidiary in Beijing which was established in 1995. Further, the company is one of the world's largest 500 firms; Microsoft is the only company that fits this criteria.

Xinhua states that Microsoft said that they had six consecutive years of losses in China that totaled more than 2 billion yen. Microsoft, according to the report, admitted tax evasion and agreed to pay the fine.

The timing of this announcement is rather peculiar as it was uncovered yesterday that Microsoft had filed suit against the IRS to obtain documents over a similar issue. That suit is related to the release of information pertaining to a 'Freedom of Information' request where Microsoft asked for the contract of the firm hired to investigate the company's valuation of goods and services across international borders.

Microsoft is not the only company who uses loopholes to lower their tax burden; the most popular technique is the 'double-Irish' but the company is among the first to be fined extensively in China in a public fashion such as this. It is important to know that Microsoft also had a pricing-agreement in place with China as well and the company said that they were in compliance with that document.

Seeing as both Microsoft and China agreed that the company had been illegally dodging taxes owed in that country, the evasion likely occurred outside of the agreement by hiding revenues.

We will be curious to see if China goes after other corporations for tax evasion by using the 'double Irish' technique as it is quite common among large entities for hiding revenues in foreign subsidiaries.

Source: Reuters