The United States Internal Revenue Service has announced that Microsoft owes a staggering $29 billion in back taxes, along with fines and interest, spanning from 2004 to 2013. This announcement was made in accordance with a filing with the Securities and Exchange Commission.
Daniel Gov, Microsoft's Vice President for Global Taxes and Customs, responded to these news through a blog post, emphasizing the changes in the company's structure and practices since the period covered by the tax audit. He affirmed that tax-related issues are tied to the past and do not reflect the current practices of the company.
On another note, the tax authority proposes new rates that do not fully reflect the benefits of tax reductions and incentives passed under the 2017 law. According to Gov, this proposed adjustment could potentially reduce the final tax amount by around $10 billion.
Microsoft also points out that the U.S. tax authority differs with them on how to allocate profits internationally through agreements known as cost-sharing arrangements. This method is commonly used by companies to avoid paying higher taxes on profits in the United States.
In 2012, Microsoft shifted billions of dollars in profits to jurisdictions with lower tax rates, such as Puerto Rico.
Microsoft vehemently rejects the proposed amendments by the U.S. tax authority and expresses no expectation of a resolution in the coming year. The case revolves around the allocation of profits for the company between countries and jurisdictions in the period between 2004 and 2013. The company plans to contest these notifications through administrative appeals, and if necessary, will resort to legal proceedings.
In a separate development, Microsoft has secured a victory against the Federal Trade Commission regarding its previous attempt to acquire Activision Blizzard for $68.7 billion. It is anticipated that this deal will close on October 13th.
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