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The Internal Revenue Service (IRS) has sent notices to Microsoft stating that the company owes it $28.9 billion in back taxes, excluding penalties and interest. The Notices of Proposed Adjustment (NOPAs) from the IRS are for the tax years 2004 to 2013, the tech giant revealed in a Securities and Exchange Commission (SEC) filing on Wednesday.
Microsoft served notices by the IRS over billions of unpaid taxes
According to the official filing, Microsoft received the NOPAs on September 26, 2023. The notices show that the IRS is seeking an additional tax payment following an audit of the Windows maker’s intercompany transfer pricing, an accounting and taxation practice employed by multinational companies. It legally allows companies to establish prices for the goods and services exchanged between their multiple divisions or business units.
Microsoft says that the IRS has “established regulations that allow companies to use a specific arrangement for transfer pricing, called cost-sharing.” Many companies use cost-sharing because “it reflects the global nature of their business,” the tech biggie’s Corporate Vice President of Worldwide Tax and Customs, Daniel Goff, wrote in a blog post providing an update on the firm’s ongoing audit with the IRS.
Goff added that Microsoft’s subsidiaries “shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations.” As such, “the subsidiaries were also entitled to the related profits.” However, the IRS seemingly doesn’t agree with the way the company allocated profits across its operations in different regions between 2004 and 2013. Microsoft changed its corporate structure and practices after that, Goff confirmed.
Unsurprisingly, Microsoft disagrees with the IRS’ audit. The company says the revenue department didn’t take into account the taxes it paid under the Tax Cuts and Jobs Act (TCJA). This would reduce the total outstanding taxes under the audit by about $10 billion. It’s not like Microsoft plans to pay the rest, though. It will challenge the proposed adjustments and pursue an appeal within the IRS.
Microsoft says it has always followed rules and regulations
In his blog post, Goff stated that Microsoft has always acted per the rules and regulations set by the IRS. He says the company is one of the top corporate income taxpayers in the US. The firm has paid over $67 billion in taxes to the nation since 2004. Microsoft believes its position is “supported by case law.” So if the two parties don’t come to a direct agreement on the matter, the company will take the case to court. The whole process may take several years.
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