Hell no, we won’t pay, says Microsoft as Uncle Sam sends $29B bill for back taxes

Microsoft today revealed the IRS last month sent the Windows maker a bill for $28.9 billion in back taxes – and has vowed to contest the charge. The demand was disclosed in an SEC filing. We're told that US tax collectors sent the bill on September 26 in the form of a notice of proposed adjustments (NOPAs) for Microsoft’s …

[Jellied Eel]

Proportionality required..

“our subsidiaries shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations, the subsidiaries were also entitled to the related profits.”

Sure. MS Puerto Rico really performed enough of the development work to justify a $39bn share in 'related profits'. Not being a tax specialist, I do however know that tax authorities can take a very dim view of artificial constructs created to avoid taxes. Problem is it's often not just one nation's tax codes that allow this, but a whole slew of international tax and accounting agreements.

[Dimmer]

Re: Proportionality required..

How did the IRS get past the convoluted licensing income to even figure this out who did what?

Oh, yea forgot- the IRS invented convoluted paperwork.

[Blackjack]

Re: Proportionality required..

No, that was actually a Spanish King. There is actually letters of that king left unopened to this day.

[eromana]

Re: Proportionality required..

Not opening IRS letters will not lower my tax bill

[elsergiovolador]

Re: Proportionality required..

Because taxes are for little people.

[MrAptronym]

Re: Proportionality required..

International law can certainly leave loopholes you can drive a truckload of money through, but Puerto Rico is a part of the United States technically, so I am surprised it is even an option as a tax haven.

[VicMortimer]

Re: Proportionality required..

Because Puerto Ricans get no vote in Congress, they're exempt from federal income tax.

PR is one of the world's last remaining colonies. It's an incredibly unfair situation, and the fix is to make PR one of the 52 states (because DC should also be a state).

The people of PR have voted for statehood, but the Rethuglicans won't bring it up for a vote in the House because they wouldn't benefit, and the Senate filibuster keeps it blocked there.

TL;DR: It's because we have a dysfunctional government.

[Blackjack]

Re: Proportionality required..

Ehem.

https://www.youtube.com/watch?v=ASSOQDQvVLU

[aerogems]

Someone needs to say it

The "NOPA" acronym is just absolutely perfect given the circumstances.

IRS: Pay up!

MS: NOPA!

[Anonymous Coward]

Play silly games

Pay silly penalties

[Sleep deprived]

We did nothing wrong. review Google instead

Did you know they're a monopoly, also?

[DS999]

It is sad it is taking such a massive case

To prove such obvious fraud. Like an 85 person team of people who were burning CDs overnight becomes responsible for the bulk of Microsoft's development work!

If Puerto Rico is separate from the US taxwise (which came as news to me) it should be treated as a foreign government, so operating subsidiary there should be no different than operating a subsidiary in Ireland (which Apple used for shielding from taxation from the rest of the EU, but couldn't/didn't affect their US tax liability) It shouldn't be possible to call Puerto Rico part of the US for avoiding taxes but not part of the US when it comes to paying taxes, but that's apparently the argument Microsoft's tax cheat attorneys are trying to make.

[aerogems]

Re: It is sad it is taking such a massive case

It may be fraud as far as you and I are concerned, but it's probably technically legal. I'd love to see the US close a lot of these stupid loopholes with a law saying something like, wherever the work was done is where it gets taxed, and wherever the product was sold is where it is taxed. So, you make and/or sell something in the US, you pay the going US tax rate on it. I know it would never pass, because companies would spend billions on bribing lobbying legislators who would then punch holes in it large enough to sail the entire Navy through, but I wish that's how things were. The infrastructure in this country is literally falling apart because tax revenue from companies has basically dropped off a cliff since the Reagan era. CEOs of Fortune 500 companies are making hundreds of millions of dollars every year, their companies reporting billions of dollars in profits, meanwhile our education system has gone to shit, sewers and water systems are on the verge of collapse, bridges and levies literally are collapsing... all while these assholes fight tooth and nail over every last penny in taxes they have to pay. I often wonder if the money they spend on accountants and lawyers to find these tax loopholes ends up being more than they would have paid in taxes. Who's going to do the math to find out? The accountants?

[Helcat]

Re: It is sad it is taking such a massive case

" I know it would never pass"

Not while those who could and should do something to correct this are, themselves, benefitting either directly or indirectly from these loopholes existing.

The only way to fix the tax system is to remove everyone involved in it at the moment, have people who are completely honest move in to rework it without the loopholes, then replace them with administrators who can't change the system, only work with it.

When this happens, we'll have flying pig races rather than horses.

[aerogems]

Re: It is sad it is taking such a massive case

I've actually thought about having a lottery system for things like serving in state and federal legislatures. Sort of like jury duty, you can be tapped to serve a term in the state or federal legislature.

The upside to this is that there's no campaigning, and people don't really know ahead of time that they're going to be selected so they can't plan ahead for how they're going to grift off their time on the job. The downside is that they'd rely on staffers to keep them informed about how things are done and it's not really enough time to develop much in the way of a working relationship with other legislators. Granted that last one doesn't seem to happen these days anyway.

A good transition stage would be to move to a parliamentary system so that third parties could have a chance at at least getting a few seats and having some small say in a coalition government. I know the founders of this nation created it to try to avoid the long coalition forming periods with parliamentary systems, but all they ended up doing was trading gridlock up front for gridlock spread out over the entire term. It was worth a try, but it failed... miserably.

[druck]

Re: It is sad it is taking such a massive case

I've actually thought about having a lottery system for things like serving in state and federal legislatures. Sort of like jury duty, you can be tapped to serve a term in the state or federal legislature.

That was a scary enough seeing someone's freedom in the hands of a typical jury, and running the country this way would be a disaster. The majority of the jurors did not want to be there, did not listen to the testimony, had no understanding of the law, were not interested in the case apart from making idle gossip, and wanted to do anything but come to a decision. Out of each dozen, there would be one or at best two people willing to stand up and argue for their point of view, and after very little persuasion the rest were happy to go along with the dominant person, just so they could get out of there and go back to their normal lives.

Those dominant people often go to be politicians, but at least they have to argue their case against similar strong personality types with differing views, rather going unchallenged by unwilling conscripted participants.

[aerogems]

Re: It is sad it is taking such a massive case

You're kind of fixated on the wrong details there. The jury duty example was just that, an example. One most people are probably familiar with. It's not a perfect system... there's no such thing as a perfect system, though if someone can prove me to be incorrect on that I may never be happier about being wrong about anything, but it would probably be at least marginally better than what we have now. At the very least, with a lottery system we're all spared the perpetual campaign season where everyone is constantly begging for money. No more campaign ads or any of the other bullshit. That alone is almost worth the price of admission.

[druck]

Re: It is sad it is taking such a massive case

No this is exactly the point, any form of conscription is going to give you a majority of people who are unqualified and uninterested in what they have been drafted in to, whether it is jury service, military service or politics. You might not like the sort of people who want to become politicians, but at least they want to do it, and learn how to be successful in it.

[aerogems]

Re: It is sad it is taking such a massive case

You're still missing the forest for the trees, but it's not worth arguing over. Have a virtual pint in honor of it being Friday.

[doublelayer]

Re: It is sad it is taking such a massive case

The analogy is a good one, because serving on a jury is important but often dull. Being a legislator is also important and often dull. If you select people who don't want to be doing it, they'll look for ways to not do it. Oh, sure, they'll try to pass laws that they have a personal interest in, but most important laws won't be like that. Those laws will be things like the exact nature of a internet platform's liability in the case of user-submitted comments. Explaining what that means to a legislator who was just lotteried in is unlikely to work unless you force them to pay attention for hours, but if Facebook or Litigious Law Group tell them what the right answer is, that will be much easier. To some extent, this already happens, but at least a politician who chose the job is at least supposed to be interested in the decisions they're making, so they will spend at least a bit more time understanding them.

I understand the problem you want to solve. I'm afraid that having politicians chosen at random from a group of people who don't want to do it is not likely to solve that problem and will certainly introduce some new ones.

[aerogems]

Re: It is sad it is taking such a massive case

And that's really different from now... how? Unless it's a bill they're personally interested in, even professional politicians will tend to check out and just pay lip service. They may not even show up for the floor vote on whether to pass the bill. So, if people are effectively conscripted, very little may change, but we at least don't have whole months out of the year where you are afraid to turn on the TV or radio for fear of hearing yet another campaign ad. That's not nothing.

[Anonymous Coward]

Re: It is sad it is taking such a massive case3

>from a group of people who don't want to do it

They will,when you pay $150k per year and few milions in "campaign donatios" to them.I'll volunteer,any day.

Jury isn't paid and there your analogy falls flat to its face.

[usbac]

Re: It is sad it is taking such a massive case

I've always thought the presidential election should be a national lottery.

It could be televised nationally with all of the class and dignity of a typical game-show. Spend almost an hour on mindless nonsense leading up to the actual announcement. The cheesy polyester clad host is handed an envelope: "The next president of the United States is... Jim-Bob Smith from Sheeps Dick, Oklahoma...". Followed by a live broadcast of a film crew showing up at Jim-Bob's mobile home...

It couldn't be any worse than the human garbage we have been electing for the past 40 years or so!

[druck]

Re: It is sad it is taking such a massive case

By god you will find out the hard way that the average Jim-Bob is far crazier than anyone who has managed to get themsleves elected, Trump included.

All the psychosis, none of the charisma.

[DS999]

Re: It is sad it is taking such a massive case

We wouldn't need to make such radical changes, if we did ranked choice voting then voting for a third party candidate wouldn't be "throwing your vote away" in a race where you know it is only the guy with the D and the other guy with the R who will end up winning. For those who argue that's too complicated, there's nothing forcing you to do anything beyond putting your guy #1 and leaving the rest blank - then your vote is exactly the same as it is today.

There are basically four problems with our elections: 1) first past the post where third party candidates can only be spoilers except in limited circumstances in small states like Alaska or Maine; 2) party run primaries, which tend to place the most extreme candidates on the ballot and eliminate anyone with views that don't exactly fit the orthodoxy of the two major parties; 3) gerrymandering creates safe districts so the extremist loonies who win primaries are practically guaranteed to win the general election - instead have a standard open source algorithm that creates maximally (or close to that goal) compact districts taking existing boundaries like county/city lines or rivers into account; 4) Citizens United, giving "free speech" rights to any organization so they have unlimited secret donations - instead ban all donations except by a real person, and require those donations to be public. No corporation, non profit, union, partnership, etc. should be allowed to participate in the electoral process. Donations can only be accepted by political candidates, and officially registered political parties.

[Anonymous Coward]

Re: dropped off a cliff since the Reagan era

Shouldn't you have said the 'Trump era' after all, his tax cuts for billionaires added at least $7B (Billion) to the US debt that suddenly his party are concerned about. Sad that they remained silent when he was pushing those tax cuts through congress.

Vote the lot of them into history.

[aerogems]

Re: dropped off a cliff since the Reagan era

Reagan is the one who started slashing tax rates at the top end, and every Republican POTUS since then has spent like a drunken sailor on shore leave while simultaneously hobbling the country's ability to bring in tax revenue to pay for it. Before Reagan came along, the top tax rate for individuals in the US was around 68%. I think it was pretty similar for corporations. All the infrastructure and public works that have made American businesses able to... you know... do business, were built using tax money. All the roads, the power grids, water and sewage, the Internet... all those little things that would make it impossible to move goods around or provide services, without. There's also things like social security and medicare, which were created with the assumption of a top tax rate of around 70%, not the like 30-something it is now, and of course most of the wealthiest individuals get most of their income from capitol gains which are taxed at like 17%. As Warren Buffet once pointed out, his effective tax rate is lower than his secretary's.

* GHWB had his famous "no new taxes" pledge and then also got us into the first Gulf War and imposing that no fly zone over Iraq.

* GWB got us into the wars in Afghanistan and then the second Gulf War, neither of which were paid for during his time in office, and he passed a couple major tax cuts at the same time.

* Trump you already covered, not to mention the general chaos of that administration roiled markets.

Honorable mention goes to Newt Gingrich, who is probably the single most responsible party for the gridlock you see in Congress today. And of course one can't forget about how Republicans have zero problem passing tax cuts and passing massive new spending bills when they are in charge, but the moment they are in the minority suddenly they rediscover "fiscal responsibility." Like an alcoholic who runs out of money and is forced to sober up for a while. As the old saying goes: Democrats tax and spend, Republicans just spend.

You go to Europe... sure, you might pay 60% of your income in various taxes, but you have well maintained public works, you have socialized health care so you don't go bankrupt if you get into a freak car accident... you can have public pension programs where people can actually retire, unlike the US where people are being forced to work basically until they drop. The value for your money ratio is pretty high.

[Anonymous Coward]

Re: dropped off a cliff since the Reagan era

unlike the US where people are being forced to work basically until they drop.

Then we render the carcasses down for Vivoleum

It doesn't grow on trees you know!

[GodBlessIBM]

Re: dropped off a cliff since the Reagan era

Interesting that it it the nasty Republicans spending money when Dopey Joe has spent 2 Trillion dollars so far to no great avail. As for his latest 500bn splurge, the laughably name Inflation Reduction Act.

[DS999]

Re: dropped off a cliff since the Reagan era

Trump added $7 TRILLION to the debt, not $7 billion which would hardly be noticeable.

To be fair only a couple trillion of that were from his tax cuts for millionaires and corporations. Half of the rest was covid related, the other half just "ordinary" deficit spending.

But you're right, republicans that are suddenly so concerned about the debt never once raised an objection to passing Trump's debt laden budgets, or tax cuts that everyone knew would increase the deficit (the fantasy that it sparks economic growth is easily disproven by looking at the utter lack of change in the anemic GDP growth before and after those tax cuts) In fact, for all the shouting by idiots on the right about how great Trump was for the economy, the GDP growth under his first three years was exactly the same as the GDP growth under Obama's last six. The best thing you can say about him is he kept the ship on the exact same course Obama had steered it before him.

[Cris E]

Re: dropped off a cliff since the Reagan era

Um, $7b would be a treat. It's actually far, far worse than that.

"The nonpartisan Congressional Budget Office (CBO) reported that under the Act individuals and pass-through entities like partnerships and S corporations would receive about $1.125 trillion in net benefits (i.e. net tax cuts offset by reduced healthcare subsidies) over 10 years, while corporations would receive around $320 billion in benefits. The CBO estimated that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt."

[doublelayer]

Re: It is sad it is taking such a massive case

Another aspect to this is that the American tax system tries to tax anyone in its jurisdiction for everything they do, no matter where they did it. This applies to individuals and companies. This may be one reason why companies form so many subsidiaries outside the country. It's not just wanting to pay a lower rate offered by some country eager for extra revenue, but not wanting to pay tax on a transaction in the country of the transaction and the United States as well. I've known a couple people who got American citizenship, mostly through birth, but then left the country and earned money elsewhere who were surprised to hear that the US will be collecting taxes on that anyway. If companies form international companies to get around that, they're likely to try to use them for lots of even more dubious purposes as well.

My only solution to this would be to try to form an international set of tax rules about how to decide where something was done and therefore where it should be taxed. So my solution is even harder to get accomplished than yours. I think I'll give up on this getting fixed and just resign myself to large companies being able to find their way around most tax regulations.

[aerogems]

Re: It is sad it is taking such a massive case

If someone wants to have a discussion about reforms to the US tax system, that's a conversation I'm willing to have. Tim Cook, for example, is infamous for his bitching about the US tax code. If he has some specific examples, I'm willing to listen, but I have my own specific examples like reimposing the old top tax rates and closing loopholes that let companies avoid paying taxes. Somehow from the 50s-70s and even 80s, companies somehow managed to thrive in the US, despite those tax rates, so I suspect they can do so again. I rather suspect they would do better if they were paying more taxes. Companies are always bitching about finding qualified applicants; more tax revenue means schools can be properly funded and you have a better educated population of potential workers. All the roads that are used to move goods around... making sure they're in good repair means your goods can be moved around with minimal issues. It also probably reduces wear and tear on vehicles too. You ensure that you have a stable and appropriately redundant power grid, which you rely on to run your factories or even the computers your employees use. There's all kinds of "hidden" benefits that come directly from tax revenue.

[Anonymous Coward]

Re: schools can be properly funded

There are moves in TX to make public schools a think of the past. BIG MONEY has moved in and is systematically destroying what is left of the education system.

This is all part of the MAGA/GQP grand plan to stay in power for 1000 years. An uneducated and ignorant electorate will keep voting for idiots like Trump even if he is banged up for life. President and Felon Trump running the USA from inside a Jail... the mind boggles.

[aerogems]

Re: schools can be properly funded

"This is all part of the MAGA/GQP grand plan to stay in power for 1000 years."

The Fourth Reich. I jest... but not as much as I should be.

[Dimmer]

Re: schools can be properly funded

Are you talking about school choice in Texas? I know of no attempt to get rid of public schools, only to make them accountable.

When you have a school district spend $1mil on a football locker room after another $2 mil on football and no computers are allowed in elementary classes there needs to be competition. Their IT department works out of a condemned school with plywood on the windows.

Schools choice is also about allowing the poor access to good education, not just the kids in rich neighborhoods where the schools are upgraded every 4 years.

Every time you hear that a new tax is for schools and roads it is BS. Still waiting on the funds from the lottery to go to the schools as promised.

[matjaggard]

Re: It is sad it is taking such a massive case

@aerogems I downvoted your well thought through post on tax because whilst it seems simple to tax things where the work was done or where the product was sold it's not.

Firstly because what is the "work" and "product" for Google as an example. Hard to define because it could be where you sell the advertising or where the end users are or where the search code was written or quite a few other options.

Secondly the US would never agree to this because they'd lose quite a lot of tax revenue for massive companies like Apple who currently pay US tax for (some) EU software on Chinese hardware sold to EU citizens.

[aerogems]

Re: It is sad it is taking such a massive case

And how much tax revenue is being lost under the current rules because Apple, Microsoft, Google, and friends, all transfer the ownership of products to a tiny little office they set up in some low-tax jurisdiction somewhere in the world? It's like that city where the court house is that patent trolls love to file in. There are whole office parks where companies will lease an office so they can claim to have a presence within the jurisdiction of that court, but no one ever actually works out of that office. Go there on any random business day, start knocking on doors of companies that have filed patent lawsuits, and you probably won't get a response at a single one of them.

[Richard 12]

Fund the IRS and taxes get paid

Good example of why the Republicans don't want the IRS to be appropriately resourced.

If they can't afford to undertake multi-year-long enforcement action then only little people will pay taxes.

[CowHorseFrog]

Its funny how Americans always wave the flag even more than NK waves pictures of fatty, and yet they always bitch when it comes time to pay taxes.

[Primus Secundus Tertius]

They have a long history of that: e.g. dodging import duties on tea in the 1770s.

[balrog]

And before that refusing to pay those who stopped the pesky French invading them.

[Anonymous Coward]

In general, when the word "Liberty" is used it means, "I don't have to pay my bills".

[elsergiovolador]

Imagine

Microsoft’s filing states it can cover the demand if it decides to pay up.

Imagine a little guy contemplating whether to pay up owed tax.

If a company is in a position to pick and choose their taxes, then it's time that it is broken up to smaller companies until they no longer can.

[CapeCarl]

Re: Imagine // Old programmers never die...

...Their context is saved on an infinite stack, somewhere.

OK, so a side effect of having my neurons remapped in 12th grade (1974) to become a programmer (my high schools' 1st coding class) versus a car mechanic, I immediately transformed that last sentence into a "while loop" // In MS's case it might take a while to run

[doublelayer]

Re: Imagine

To be fair, this isn't them saying they choose not to pay, but that they don't think the tax collector is correct about whether they have to pay. They're going to argue that in court, and if the court says that they're wrong, they will be paying. You can do the same, and people sometimes do because the tax authorities make mistakes. If you're wrong, just like them, you'll have to pay the bill and some penalties for being late and arguing so much. Microsoft's just going to make this argument much longer than an individual could.

[alain williams]

Someone at Microsoft forgot ...

to send the fat brown envelopes to those politicians.

[Roland6]

“We have conflict, confidentiality and ethical concerns,”

[source: propublica article linked to in the article. ]

Love the double standards, so Microsoft use KPMG because they had “significant experience assisting Fortune 50 companies” without such concerns, yet as soon as the IRS start using the same companies…

[ChrisElvidge]

Re: “We have conflict, confidentiality and ethical concerns,”

Relying on KPMG - really?

https://www.theguardian.com/business/2023/oct/12/kpmg-fined-record-21m-over-carillion-audit-failures

[JimC]

Re: Relying on KPMG - really?

A fine example. It looks as if KPMG's auditors reported exactly what the Carillion execs and directors wanted them to report, which is of course how you get your contract renewed. A trial starts soon to investigate the behaviour of said execs and directors, after which presumably one may be more forthright about their honesty - or otherwise - during the affair.

[navarac]

Tax Burglars

Corporate Companies can afford to pay due taxes, but pay good money to accountants and lawyers to avoid it. The rest of us, who can least afford the taxes, or the "weasls" to get us out of it, get stuck for a greater proportion in consequence. Shame on you Microsoft, (and the rest - you know who you are - the likes Amazon, Apple etc etc).

I see Bernie Eclestone (F1) finally got his due in a UK court. Pity he only got a suspended sentence.

[Steve Davies 3]

Only $29.8B?

It should have been $29.8T. Apart from clearing almost all the US national debt we, the victims of their stupidity need some payback. Deciding that everyone wanted a tiled UI is worth $10T on its own.

I'm sure others can list out their major foopah's and cost them (in Trillions please)

[John Brown (no body)]

Re: Only $29.8B?

Upvoted! But for future reference, the phrase is "faux pas" from the French, translated literally as "false step"

[Zippy´s Sausage Factory]

Micros~1 may be able to pay if they "decide to", but I'm pretty sure that internally there's panic and alarm at the size of the demand.

You know the tax won't stop at this. As of now, everything is up for grabs. And I'm sure foreign tax agencies are watching this very carefully indeed. I can easily imagine this might just be the start of a set of cases.

[Anonymous Coward]

And Meanwhile

at Google and AMZN, moves will be made to buy a country and change their domicile to that country so that they can avoid shed loads of US tax liabilities.

[John Brown (no body)]

Re: And Meanwhile

Amazon may be planning on moving their tax jurisdiction to outer space. Once Bezos gets some working engines into production.

[Anonymous Coward]

Re: And Meanwhile

It''l be touch and go.

Currently the IRS is moving faster than B.O.

[John Brown (no body)]

"Micros~1 may be able to pay if they "decide to", but I'm pretty sure that internally there's panic and alarm at the size of the demand."

Yes, when huge tax demands such as this come in from national tax authorities, unlike you and I, the little people, these corporations get taken out to lunch where they can begin negotiations on how much will actually end up being paid. Invariably, it ends up being less than half of the headline figure. But even to the likes of MS, half of the this headline figure is a fair chunk of change.

I did, however, like the MS defence of "but we don't do it like that any more". Sorry MS, but there;s still such a thing as back taxes based on when you did do it like that!

[Rgen]

Good. Pay up. Government need the money.

[Stu 18]

It is about time that American megacorporates got what they deserve

Especially Microsoft.

Every day I have to fight all the monopolistic and virus like changes they make to the operating system and applications,

They don't pay tax

They blatantly copy other peoples stuff (slack, dropbox)

I propose they

- should be held responsible for every exploited weakness of their code and have to pay each and every holder of their licenses until the vulnerabilities are fixed.

- should have to pay the maximum local tax rate in every country they operate in for every license that they sell, based on revenue not on cost manipulations

- should be forced to unbundle everything and offer everything they sell as a pick n mix with no discounting or special rates for anyone

- ceo pay should be discounted by the number of vulnerabilities found each year. 100 vulnerabilities, sorry that is 100% pay cut for the month.