Microsoft Owes $29 Billion in Back Taxes, as Per IRS

The Internal Revenue Service (IRS) has delivered a staggering claim to Microsoft, asserting that the tech giant owes $28.9 billion in back taxes, accompanied by penalties and interest. This revelation, disclosed in a recent securities filing, has ignited a contentious tax dispute that harks back to the years between 2004 and 2013.

The core issue at hand is the IRS's investigation into how Microsoft allocated its profits across various countries and jurisdictions during this decade-spanning period.

Microsoft Responds to the Audit

Microsoft's Corporate VP for Worldwide Tax and Customs, Daniel Goff, didn't stay silent in the face of this audit. He took to a blog post to address the situation, emphasizing that the company's corporate structure and practices have evolved significantly since the years under scrutiny. Goff emphasized that "The issues raised by the IRS are relevant to the past but not to our current practices."

The Tax Cuts and Jobs Act and Transfer Pricing Controversy

According to Goff, the IRS's proposed adjustments do not account for the sums Microsoft paid under the Tax Cuts and Jobs Act. This, he believes, could potentially reduce the final tax obligation by a substantial $10 billion.

Furthermore, Microsoft asserts that the IRS disputes how the company allocated its profits on an international scale, particularly through a mechanism known as cost-sharing, which falls under the umbrella of transfer pricing.

Microsoft's Defiant Stance

Microsoft has made it abundantly clear that it disputes the IRS's "proposed adjustments" and intends to "vigorously contest" them. This puts the company on a collision course with the IRS in a legal battle that could potentially stretch over several years.

This controversy unfolds in the wake of another major legal victory for Microsoft, where the Federal Trade Commission (FTC) failed to secure a preliminary injunction against the tech giant's plan to acquire Activision Blizzard for a substantial $68.7 billion. This acquisition is set to be finalized on October 13th.

Via