December 4, 2023

IRS demands: Microsoft must pay $29 billion in back taxes

The US tax agency’s Internal Revenue Service (IRS) is taking a clear stance against Microsoft and is demanding billions of dollars in back payments.
Photo: Heidi Bessen –

It is likely to have one of the highest tax demands in history. The IRS is demanding an additional payment of approximately $29 billion from Microsoft. There must also be interest and penalty fees. It concerns events that occurred between 2004 and 2013.

Investigations into Internal Revenue Service (IRS) It has been in operation for many years. Now the investigation appears to have reached a preliminary conclusion – which is great. At the end of September, Microsoft received so-called Notices of Proposed Amendment (NOPA) from the IRS, Daniel Goff, the company’s vice president of global tax and customs, wrote in a blog post. The investigation has now been completed, and Microsoft has received specific details about these allegations, according to the US company’s tax expert.

The US IRS accuses Microsoft of violating tax laws when recording income, expenses and resulting profits. This primarily relates to the issue of how a company moves bookings back and forth between different countries and business units.

Microsoft: We’ve always followed the rules

Microsoft rejects these accusations. They have always followed IRS tax rules and paid their dues correctly everywhere in the world. Overall, Microsoft is one of the largest taxpayers in the United States, Goff writes. Since 2004, the software giant has paid more than $67 billion to US tax authorities alone.

Tax authorities around the world frequently accuse companies operating internationally of approaching the accounting of their international business in an overly creative manner. The goal: avoid taxes and fees as much as possible. Regulatory authorities criticize companies that often act correctly within the bounds of legality, and sometimes even go beyond it.

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Gove doesn’t want to know anything about the illegal practices. After all, the IRS itself introduced rules that allowed companies like Microsoft to make certain compensation arrangements. Microsoft’s tax expert is talking about “cost sharing” at this point. Many multinational companies use this cost-sharing system because it reflects the global nature of their business. “Because our subsidiaries shared the costs of developing the intellectual property, they were also entitled to corresponding profits under the IRS cost-sharing rules,” says Goff.

A tax dispute could end up in court

The dispute over Microsoft’s alleged tax debt is likely to continue. Gove said that with the decision now available, a new chapter in the process begins. He announced that negotiations will continue with the relevant departments of the US Tax Authority. This process may take several years. The Microsoft man left no doubt that the software company would go to court if an agreement was not reached with the authorities.

Gove also tried to downplay the importance of the tax dispute. After all, these are events that go back a long time. Microsoft changed its structures and practices years ago. Current accounting is not affected and is not part of the ongoing process.