IRS ends epic 16-year tax probe and sends Microsoft the bill, but Redmond disagrees.
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Microsoft disputes $29B tax bill after “one of the largest” audits in IRS history
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The fact these obvious fraudulent schemes were allowed to fester for so long really was obscene.
It's straight up theft, whether technically legal or not. The excuse of: Oh its minimisation not avoidance and a corporations fiduciary duty seems less defensible when the laws are set by politicians basically sponsored by the benefiting corporations.
An example closer to home for me, Australia has a 30% corp tax rate, Google paid $85M on $7B earnings, and everyone seems to collective shrug, what can you do they have great tax lawyers/accountants, and not to single Google out, they all do it.
If there is one populist push I can get behind its the push that corporations need to pay their fair rate of tax where the commerce takes place, I've no issue with countries having different tax rates if they choose, but tolerance to the transfer pricing/double Irish/etc scam needs to die.
It's straight up theft, whether technically legal or not. The excuse of: Oh its minimisation not avoidance and a corporations fiduciary duty seems less defensible when the laws are set by politicians basically sponsored by the benefiting corporations.
An example closer to home for me, Australia has a 30% corp tax rate, Google paid $85M on $7B earnings, and everyone seems to collective shrug, what can you do they have great tax lawyers/accountants, and not to single Google out, they all do it.
If there is one populist push I can get behind its the push that corporations need to pay their fair rate of tax where the commerce takes place, I've no issue with countries having different tax rates if they choose, but tolerance to the transfer pricing/double Irish/etc scam needs to die.
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We don't need more funding for the IRS, we need a simple, logical tax code.
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I disagree, and legally in the US at least that is incorrect. Quoting from this IRS document which happens to be the top search return I got, “tax avoidance is perfectly legal”. Tax evasion on the other hand is illegal. It’s an important distinction. There is even an argument that many companies make that it is a fiduciary responsibility of theirs to the shareholders to implement many (legal) tax avoidance mechanisms to preserve or enhance shareholder value. But going back to my initial point, it’s still fair to be critical of those mechanisms if you think it is morally or otherwise wrong. And complain to your elected officials to change the law to make what may be a legal tax avoidance scheme today an illegal tax evasion scheme in the future.
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While this is all technically correct I can help but think it also ignores present reality.
If its a corporation's fiduciary duty to pay minimum tax legally allowable, I guess they must scour the globe in order to find the most beneficial tax regime, then transfer paper profits there, also whats a couple million in donations to politicians/super PACs compared to the billions saved, in fact even if lobbying costs billions, as long as it is one dollar less than a corporation paying a fair tax bill, well it is their fiduciary duty right?
Obviously plenty of blame to round.
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To be fair, MS is still way worse for that; I had a paid for Windows 8 license, updating to Windows 10 during the free upgrade window and got a new key.
Then one day that key just stopped working for no reason; after two hours (more than half on hold), and six increasingly useless support staff, I decided to use a cracking tool to pirate the OS I had a legitimate key for.
All they had to do was fix my existing key, or give me a new one, yet instead I got dragged through the same set of steps (not one of them would accept I'd already done these myself and then again for every previous staff member).
I would happily pay for the IRS to put Microsoft through that experience for me.
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I’m not saying I agree with what they are doing or think it’s right. I don’t. But, there is frequently a difference between what is right and what is legal. I don’t know if what they’ve done is legal or not. That will presumably be sorted out through their appeal and the courts. I fully support a reasonable, simplified tax code that eliminates the various loopholes and closes the many legal tax avoidance schemes that so many corporations are incentivized to pursue (regardless of the ultimate legality or not of this particular case).
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Yes. The US's taxation system is systemically broken. But that problem is hardly unique to taxation. The whole US government, indeed the entire society, is systemically broken, if you're willing (or able) to look at it objectively. Because it is working as intended by those who set it up to be exactly this exploitative, coercive, and corrupt. It didn't 'accidentally' get this bad. It has always been driving to this kind of depravity all along. Which is why the US been like this several times throughout its history...and why it took herculean efforts (with a lot of violence and bloodshed) for the people to claw their country back from the grip of the wealthy and powerful. And a BIG part of the problem is Capitalism. It's a system designed, from the ground up, to enrich the wealthy and empower the powerful by gatekeeping and rent seeking access to a nation's resources, ie its 'capital.' It creates a two-class caste system: those who 'own' and those who must work for them to survive. Which isn't really all that different from feudalism. Except instead of the wealthy and powerful being the 'government' they simply own the government.
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Tax code complexity is a red herring:
Multinational companies are expected to have subsidiaries in multiple countries, and revenues booked in multiple countries. The code has to account for that - to avoid double taxation on this income. If a company abuses that by setting up a Double Irish/Dutch Sandwich or similar scheme, simplifying the code isn't going to catch that.
A simple code keeps honest people honest. Dishonest entities (ex: Microsoft, with KPMG's help) use complex schemes to defeat it via obfuscation. These same entities pay (lobby/fund) legislators to under-fund the IRS - resource starvation ensures the IRS can't pursue/investigate this obfuscation. In summary, tax code complexity was never the issue here - bad actors willing to go to great lengths, was the issue.
I cannot stress this enough -- tax avoidance to the tune of 30 billion dollars doesn't happen because the code is too complex. It happens when a bad actor does everything in their power to avoid compliance with the code.
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What the fiduciary duty requires and what a business choses to two are related but distinct. When they choose to fight the tax bill (or utilize legal tax reduction), it's not because they have to or are forced to do so due to the fiduciary duty. It is because they want to minimize their tax burden. That is the nuance that is missing.
We should not let ethically and morally grey behaviours hide behind an non-existent legal shield.
Classis example is a company choosing pricing. Whether they price the widget at $1 or $2 is immaterial to the fiduciary duty to the ongoing business concern. What would be wrong is to price the widget to benefit the decision maker.
All a fiduciary duty requires is to place the interests of the fiduary first, but for businesses, it's not the exclusive interest, and how one defines the interests of the fiduciary has been given wide latitude generally by courts.
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They can still cancel their buyout of Activision to fork over the cash. That's probably for the best anyway. Welp, all's well that ends well.
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Considering that USA effective tax rate for corporations is almost nothing, they should pay and shut up, especially since they’re stealing money from us ultimately.
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The corporate tax rate during the years in question was one of the highest in the world at 35%. There is a reason many corporations are unwinding these complex schemes post TCJA tax cuts which brought it to 21%.
Don't even get me started on the outrageous/unfair/complicated rules which were enacted to "pay" for that tax cut. It has been making tax accountants across the U.S. absolutely miserable over the last 6 years.
I would also reiterate the IRS is severely, extremely understaffed right now. It is highly likely the tax bill here is computed in some comical way as a starting point for negoations/tax court so it's almost certainly not accurate to say they underpaid by $29B.
And the IRS 100% needs significant more funding to go after tax evaders and non-filers. Yall have no idea how many people/corps just straight up don't file or file wildly incorrect fraudulently returns. MSFT doesn't even move the needle compared to what is out there.
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Republicans, in their infinite wisdom have managed to do to the IRS to a lesser extent what they did to the EPA. Keeping the agency barely alive, enough to keep it alive to comply with the mandate, but barely functional to be effective.
Remember when Donald Trump‘s taxes were being audited, they could spare just one auditor on a job that normally would take a team of people.
Remember when Donald Trump‘s taxes were being audited, they could spare just one auditor on a job that normally would take a team of people.
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Really hope the IRS is right and that Microsoft loses.
Because 100% chance there are dozens of other megacorps doing exactly the same thing as Microsoft and the IRS should be going after them next. Corporations by their very nature are Lawful Evil in alignment. But that means they are evil. And it means they only follow as much law as they think they need to. We should be fucking hounding them every second of the day to do the right thing because they'll never do it on their own.
Because 100% chance there are dozens of other megacorps doing exactly the same thing as Microsoft and the IRS should be going after them next. Corporations by their very nature are Lawful Evil in alignment. But that means they are evil. And it means they only follow as much law as they think they need to. We should be fucking hounding them every second of the day to do the right thing because they'll never do it on their own.
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Nonsense. There was never a time in the U.S. that employees were generally treated as an equal stakeholder. I have no idea where you could possibly be getting such an idea. Nor was laying off employees to move production to where employees were cheaper at all a new thing. The textile manufacturing jobs that were moved from the Carolinas to the Far East in the 80s and 90s had been in New England a generation earlier. And before that in Old England.
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The fact the Jones Act is still law is criminal as far as I'm concerned.
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Sounds pretty cheap for 10 years of Microsoft's earnings. It's only ~1000x what the IRS said Willie Nelson owed...
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I came up with a solution decades ago. It's really simple.
All Senators & House members must calculate their own taxes. Working alone. And equipped only with paper, pencil, and 4-function calculator.
That should sort out the tax code in no more than 2 years. In that time, we can also balance the federal budget with a $50 pay-per-view fee, so that everybody can watch their reps sweat.
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That happened a long time ago, the GOP loves screaming that they want to disband the IRS after all.
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And Hawaii. It's ridiculous that there is not at the very least a carve out in the law for islands.
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As much as we can extract from the customer is the vast majority of business. Very few businesses are pressured into prices relative to cost. I can really only think of gas prices that act that way.
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It rubs the lotion on its skin, or else it gets the audit again…
Goodbye Horses playing in the background
Microsoft tucks their taxes between their legs, and looks into the camera
“Would you tax me? I'd tax me. I'd tax me hard. I'd tax me so hard.”
Goodbye Horses playing in the background
Microsoft tucks their taxes between their legs, and looks into the camera
“Would you tax me? I'd tax me. I'd tax me hard. I'd tax me so hard.”
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Yes, you are expected to make a fuss when you're getting apparently screwed, even if it's just the tip.
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The reason Microsoft is getting hit with this bill is that they fiddled their taxes. So, what you’re saying is that Microsoft did such a good job of obfuscating their finances that it’s too confusing to work out how much tax they actually owe and therefore they shouldn’t have to pay? That’s certainly a perspective.
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When you’re dealing with an entity big enough to literally change laws in their favour, insisting on sticking to the letter of the law seems unlikely to produce results.
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There's an interesting idea for the tax forms..... "Dear citizen, you may choose to contribute some or all of your tax refund to the Office for Prosecution of Tax Evasion. Any money recovered by the OPTE, net of expenses, will be shared 70% to the public coffers and 30% to be divided proportionally among all citizens who helped to fund the OPTE."
I can think of a lot of ways it could be gamed, and could fail spectacularly, but it's fun to think about.
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Probably referring to the 1950s when unions were at their peak. Unions comprised 1/3 of the workforce, and despite the obvious racism and sexism at the time, income inequality was close to its lowest level ever. That was also the era where companies like GE bragged in their quarterly reports about how much they were paying in taxes to show how patriotic they were. That started changing in the 1960s as union membership started to decline.
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Hah yeah it might be a disaster but I do like the idea of "tax-cheat bounty bond." Basically an investment instrument that funds making the traditional investor class paying up.
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Let me start with something that is obvious to tax professionals but for non-tax professionals controversial - transfer pricing rules are absolutely essential, they are a tool for tax authorities to stop companies moving profits from high tax countries to low tax countries.
Of course it also follows that if tax authorities can use transfer pricing rules so can tax payers.
Let me give an example, which has nothing to do with MS, of the correct but still controversial application of transfer pricing rules. Starbucks has many subsidiary companies and like most multi-national companies it has set up a European holding company, probably in the lowest tax country it can find in Europe, to manage the affairs of its European operations. It probably has at least one operating subsidiary in each of the major (and many minor) European companies. Like many multi-national companies where it makes sense to centralise a particular facet of its business it has done so - for Starbucks Europe they centralised the function of buying coffee beans in a Swiss subsidiary because the major coffee bean exchange is in Switzerland (no idea why). The Swiss subsidiary buys coffee beans and then sells them on to other Starbucks operating subsidiaries around Europe. Without transfer pricing rules Starbucks could set (for tax purposes) the price each subsidiary pays by reference to how much profit Starbucks wanted to move to or from that subsidiary. With transfer pricing rules Starbucks is legally obligated for tax purposes to have each subsidiary be deemed to have bought the beans from the Swiss subsidiary at whatever would have been the market price in the country of the operating subsidiary at the time.
But that example also demonstrates how difficult transfer pricing rules are to operate in practice - especially some 16 years after the event. Reasonable people can differ about what the "market price" should be. This makes it very hard for IRS to prove its case especially if, as all well run companies should, MS documented at the time its rationale for determining the market price. Tax authorities only usually win transfer pricing cases where the company has been incredibly stupid, failed to document properly, or pushed the line so far from reality that the Hubble telescope would struggle to find it.
I have no doubt that ultimately MS will end up paying something in this case but I am also fairly sure that it will be massively less than $29 billion.
Of course it also follows that if tax authorities can use transfer pricing rules so can tax payers.
Let me give an example, which has nothing to do with MS, of the correct but still controversial application of transfer pricing rules. Starbucks has many subsidiary companies and like most multi-national companies it has set up a European holding company, probably in the lowest tax country it can find in Europe, to manage the affairs of its European operations. It probably has at least one operating subsidiary in each of the major (and many minor) European companies. Like many multi-national companies where it makes sense to centralise a particular facet of its business it has done so - for Starbucks Europe they centralised the function of buying coffee beans in a Swiss subsidiary because the major coffee bean exchange is in Switzerland (no idea why). The Swiss subsidiary buys coffee beans and then sells them on to other Starbucks operating subsidiaries around Europe. Without transfer pricing rules Starbucks could set (for tax purposes) the price each subsidiary pays by reference to how much profit Starbucks wanted to move to or from that subsidiary. With transfer pricing rules Starbucks is legally obligated for tax purposes to have each subsidiary be deemed to have bought the beans from the Swiss subsidiary at whatever would have been the market price in the country of the operating subsidiary at the time.
But that example also demonstrates how difficult transfer pricing rules are to operate in practice - especially some 16 years after the event. Reasonable people can differ about what the "market price" should be. This makes it very hard for IRS to prove its case especially if, as all well run companies should, MS documented at the time its rationale for determining the market price. Tax authorities only usually win transfer pricing cases where the company has been incredibly stupid, failed to document properly, or pushed the line so far from reality that the Hubble telescope would struggle to find it.
I have no doubt that ultimately MS will end up paying something in this case but I am also fairly sure that it will be massively less than $29 billion.
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Yep. That is absolutely mind blowing.
If you make more than 100 million in revenue per year, you should be required to pay in full for the entire IRS audit process, including appeals, if you lose.
Also, the fact they were able to get laws changed…
We need a standard, modernized tax code enshrined into a constitutional amendment.
If Microsoft can do this, think of what other companies are doing.
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At $3B a day, that's almost 10 whole days of interest payments on the U.S. national debt!
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Microsoft only has $34.7 Billion in cash, the rest is already tagged for investment, like the ATVI purchase and needed expansion of datacenters, and they have also been playing bank, by lending out their money at 4% on CDs, which also may be way under right now with rates higher than that at 5.5. They cannot really afford this with cash being so expensive, plus whatever fees they incurred. Congress and social media are already picking this up and screaming about corporate greed and not paying taxes, instead using that tax money to eat competition. This time could be different.
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As I understand it, as an American citizen, if I move to Canada and work there, I have to pay whatever taxes are owed in Canada AND I still have to pay US taxes, except that I can deduct Canadian taxes paid.
IE, lets say I paid $20k in taxes in Canada, if my US taxes were less than $20k, I'd owe nothing to the US. If my US taxes were $25k, I'd still owe the $5000 difference to the IRS.
Why couldn't such a thing be applied to corporations?
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MS spent 70 billion dollars today. Apparently they’re not hurting for cash?
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