US taxes claim $28.9 billion from Microsoft

The US tax authorities are demanding $28.9 billion from Microsoft for unpaid amounts between 2004 and 2013, as well as interest and penalties, as governments try to take action against multinationals' tax avoidance practices.

“We do not agree,” Microsoft responded in a stock market document it published on Wednesday, “and we will vigorously contest” the conclusions of the federal tax authorities (IRS). Microsoft specifies that it will initially appeal to the IRS, and could even initiate legal proceedings later, if necessary. “It is important to note that the IRS appeal process will take several years and if we do not reach a direct agreement with the IRS, then Microsoft will have the opportunity to challenge the unresolved issues in court” , underlines Daniel Goff, the company's vice-president, responsible for international tax issues.

He says the dispute concerns the distribution of his profits between countries and jurisdictions between 2004 and 2013. He estimates that the IRS failed to take into account up to $10 billion in taxes already paid by Microsoft. “We believe that we have always (...) paid the taxes that we owed in the United States and around the world,” he insists.

The parent company of Windows and Xbox said the IRS claim was the result of discussions over a decade "to answer questions about how we allocated our income and expenses for tax years going back to 2004. Microsoft claims to have changed its approach since the audit. “Therefore, the questions raised by the IRS are relevant to the past, but not to our current practices,” the group added. “Since 2004, we have paid more than $67 billion in taxes in the United States,” he adds.

Asked by AFP, the American tax agency responded that it could neither confirm nor deny the existence of disputes.

Microsoft achieved $212 billion in revenue for its last annual fiscal year (ending June 30, 2023), of which it generated more than $72.4 billion in net profit. According to the stock market document, Microsoft considers its provisions for tax risks to be “sufficient” at this stage. “We do not expect a final resolution of these issues within the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease in our tax provisions for these matters over the next 12 months,” specifies the technology group.

The taxation of multinationals, from oil to technology giants, gives rise to numerous controversies and legal cases, as the authorities try to tighten the cracks, but large companies are experts in tax optimization. Governments have accused companies such as Apple, Amazon and Microsoft of channeling their revenues through low- or no-tax jurisdictions in order to avoid paying taxes.

In Europe, Apple and Brussels are clashing over billions of euros in tax advantages obtained in Ireland by the iPhone manufacturer but deemed illegal by the European Commission. The OECD (Organization for Economic Cooperation and Development) published on Wednesday a draft agreement aimed at distributing tax revenues derived from the profits of large multinationals, particularly those in the digital sector, more equitably between States. This “multilateral convention” is not yet open for signature by States, certain countries including India, Brazil and Colombia still having reservations on certain points. But the OECD hopes to have it ratified by the end of the year.

At the same time, the United States is also trying to reframe technological companies, whose economic weight translates into significant political power. The government, states and the competition authority are leading the charge on different fronts, from monopolies to respecting user privacy, with mixed results. Washington, for example, had to give up preventing the takeover of Activision Blizzard video game studios by Microsoft, an operation still in progress.