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

Says it has enough cash to foot the demand

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 activities in the tax years 2004-2013.

“The primary issues in the NOPAs relate to intercompany transfer pricing,” the filing stated. Transfer pricing is the practice of setting prices for goods and services exchanged within a company.

More specifically, the IRS describes it as “prices charged by one affiliate to another, in an intercompany transaction involving the transfer of goods, services, or intangibles, yield results that are consistent with the results that would have been realized if uncontrolled taxpayers had engaged in the same transaction under the same circumstances.”

Transfer pricing is legal, though when it sees revenue shifted to low-tax jurisdictions it can be considered abusive.

In 2020 ProPublica detailed Microsoft’s sale of assets to a tiny corporation in Puerto Rico, a territory that gave the software giant a tiny tax rate described as “nearly zero percent.”

Moving its assets to Puerto Rico meant around $39 billion in profits weren’t taxed at the level that other jurisdictions levy, it's claimed.

The IRS has been concerned about Microsoft’s practices since at least 2014, when the software giant was sued for not coughing up documents related to a tax probe.

Microsoft’s filing states it can cover the demand if it decides to pay up. The announcement did not appear to affect Redmond's share price.

“We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months,” the filing stated.

A Microsoft blog post appended to the filing, but not posted to Microsoft.com at the time of writing, sees Daniel Goff, corporate vice president for worldwide tax and customs argue “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.” ®

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