Forgot your password?
typodupeerror
Microsoft The Almighty Buck Businesses Government United States Your Rights Online

For Microsoft, $93B Abroad Means Avoiding $30B Tax Hit 316

Posted by timothy
from the what's-billed-vs-what's-owed dept.
walterbyrd (182728) writes "Microsoft Corp. is currently sitting on almost $29.6 billion it would owe in U.S. taxes if it repatriated the $92.9 billion of earnings it is keeping offshore, according to disclosures in the company's most recent annual filings with the Securities and Exchange Commission. The amount of money that Microsoft is keeping offshore represents a significant spike from prior years, and the levies the company would owe amount to almost the entire two-year operating budget of the company's home state of Washington."
This discussion has been archived. No new comments can be posted.

For Microsoft, $93B Abroad Means Avoiding $30B Tax Hit

Comments Filter:
  • Okay... and? (Score:5, Insightful)

    by beelsebob (529313) on Saturday August 23, 2014 @04:13PM (#47737965)

    Why should they repatriate it? What's wrong with keeping money earned abroad, abroad?

    • Re:Okay... and? (Score:5, Insightful)

      by Anonymous Coward on Saturday August 23, 2014 @04:17PM (#47737997)

      The summary, of course, missed Microsoft's legitimate response to people's enquiries:

      The company says it has "not provided deferred U.S. income taxes" because it says the earnings were generated from its "non-U.S. subsidiaries” and then "reinvested outside the U.S.”

      It's almost like the editors wanted to publish a biased article or something. Scandalous.

      • Re:Okay... and? (Score:5, Informative)

        by Em Adespoton (792954) <slashdotonly.1.adespoton@spamgourmet.com> on Saturday August 23, 2014 @06:06PM (#47738657) Homepage Journal

        I'd be interested to know if the majority of that money was in Ireland. If it wasn't, this is a non-story. If it was... well, there are ways of making the money "non-US" and you can rest assured that MS knows ALL of these ways. Their tax lawyers are just as good as IBM's IP lawyers.

        • It's only resting in our account...

      • Re:Okay... and? (Score:5, Informative)

        by Anonymous Coward on Saturday August 23, 2014 @11:41PM (#47740221)

        It's almost like the editors wanted to publish a biased article or something.

        Or a truthful one, see below.

        And to those apologists who claim it's the laws that are at fault, not Microsoft, the thing to remember is that all those millions of dollars Microsoft has used to buy those laws were extorted from their customers. They charged massive monopoly rents for their lockin-based software so they could have enough cash to buy as many legislators as they needed to avoid funding infrastructure and civil protections in the states and countries they're based in.

        Microsoft has a massive system by which to avoid taxation, detailed in another Senate report from last September.

        American companies keep 60 per cent of their cash overseas and untaxed, some $1.7 trillion, according to a U.S. Senate HSGAC Permanent Subcommittee on Investigations released in September 2012.

        That report used Microsoft as a case study for the leaps and bounds that U.S. corporations go through to minimize their tax exposure, and illustrate the current flaws with the international corporate tax regime.

        The Senate investigation found that Microsoft reduced its 2011 federal tax bill by a whopping $2.43 billion — or 44 per cent — by using a wide, international network of controlled foreign corporations and the exploitation of various loopholes in the U.S. corporate tax code.

        According to Microsoft, the company paid $3.11 billion in federal taxes in 2011.

        According to the full Senate report, Microsoft Corp does 85 per cent of its research and development in the United States. Of its 94,000 employees, 36,000 are in product R&D. The company had reported revenues of $69 billion, but with a federal tax liability of $3.11 billion only paid an effective federal tax rate of 4.5 per cent. That’s much lower than the top statutory rate of 35 per cent for corporations.

        Puerto Rico
        Microsoft Operations Puerto Rico (MOPR) is the company that pays for the right to sell Microsoft products in the Americas. MOPR makes digital and physical copies of Microsoft software and sells it throughout the United States and the rest of the Americas through different regional distributors.

        When an American buys a copy of Microsoft Office in a Best Buy in Manhattan, that was produced in and shipped from Puerto Rico.

        MOPR is owned by a Bermuda-based entity, MACS Holdings, which in turn is owned by Round Island One, a fully owned Microsoft subsidiary that is based in Bermuda but operates in Ireland.

        To review: An American buys a copy of Microsoft Office at Best Buy in Manhattan. Best Buy bought that copy of Office from a Microsoft distributor. The regional distributor bought that copy of Office from Microsoft Operations Puerto Rico. Microsoft Operations Puerto Rico is owned by MACS Holdings, which itself is owned by Round Island One, which itself is owned by Microsoft Corp.

        The reason for that convoluted supply chain — the reason why that copy of Office wasn’t just shipped from Microsoft Corp in Redmond, Washington to Manhattan — is that 47 per cent of the profits from that sale go to Puerto Rico, untaxed by the U.S. federal government.

        Those profits were taxed by Puerto Rico at an effective rate of 1.02 per cent in 2011, a massive savings from the U.S. corporate tax rate of 35 per cent. Over three years, Microsoft saved $4.5 billion in taxes on goods sold in the U.S. alone. The company saved $4 million per day by routing domestic operations through Puerto Rico.

        Ireland
        Microsoft Ireland Research (MIR) is the entity that buys into the R&D cost sharing agreement in exchange for the right to sell Microsoft in Europe, the Middle East and Africa.

        MIR doesn’t actually create or sell any products to any customers. Instead, MIR immediately licenses the Microsoft intellectual property rights to Microsoft Ireland Operations Limited

      • by tlhIngan (30335)

        It's almost like the editors wanted to publish a biased article or something. Scandalous.

        Exactly. It's exactly the same thing Apple, Google and everyone else has.

        Hell, in Apple's case, it's cheaper to borrow the money in the US than repatriate it. When Apple needed $17B, they took on debt against future US earnings, because it would cost them less to pay back that principle plus interest than it would if they were to bring in the money from offshore into the US (which I think would've been close to $30B to

    • Re:Okay... and? (Score:5, Insightful)

      by meerling (1487879) on Saturday August 23, 2014 @04:18PM (#47738007)
      Because most, if not all, of the big companies use various means to offshore money that should have US taxes paid on them oversea so they can avoid it.
      Apparently Microsoft is no exception to that, nor even all that exceptional if that's all they've "shielded" from US taxation.
      • Re:Okay... and? (Score:5, Informative)

        by IamTheRealMike (537420) <mike@plan99.net> on Saturday August 23, 2014 @05:14PM (#47738349) Homepage

        The USA is unique in considering all income earned anywhere to be taxable in the USA, even if that money never actually touches America. No other country has a tax system that works like this, perhaps because it's stupid. Instead they have double taxation treaties so if money is earned abroad and you pay taxes there, you can spend the money back home at your HQ without it being taxed a second time. America doesn't, so companies that earn a lot of money abroad simply don't spend it on their HQ. They find things to spend it on in other countries instead.

        • Re:Okay... and? (Score:5, Informative)

          by TubeSteak (669689) on Saturday August 23, 2014 @05:46PM (#47738559) Journal

          Instead they have double taxation treaties so if money is earned abroad and you pay taxes there, you can spend the money back home at your HQ without it being taxed a second time. America doesn't,

          [Citation Needed]

          Rebuttal: The US system works by requiring Corporations to pay the difference between the foreign and US taxes.
          Citation: http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z [irs.gov]

          /Personal income is likely to get double taxed, but that's not what we're talking about.

          • Re:Okay... and? (Score:5, Interesting)

            by IamTheRealMike (537420) <mike@plan99.net> on Saturday August 23, 2014 @07:10PM (#47739017) Homepage

            Citation: http://www.irs.gov/Businesses/... [irs.gov] [irs.gov]

            Despite the URL, that page only talks about individuals, not companies. Can you show me I'm clearly wrong for companies? Additionally it says the states do their own thing as well and some simply ignore tax treaties.

            That said, I might well be wrong! The US tax code is notorious for being amongst the worlds most complicated, in fact it probably is the most complicated tax code in the developed world at least. So if I'm wrong that would not be surprising, although even if your statement is correct for companies too it still amounts to paying tax on the same income twice. Even if it's at a lower rate than US income, this is nonetheless double taxation.

            • Yeah, they are trying to create an economy out of complicated tax code, and provide a job to tax preparers. If everyone could do their taxes, then you'd have less economic activity, and less tax revenue. But creating a negative value, just to create jobs, to give someone a job over it is equivalent to me walking down the street and smashing windows in with bricks because it creates jobs for contractors, economic activity, and more tax revenue for the government. Fuck economic activity like that. You need an

          • /Personal income is likely to get double taxed, but that's not what we're talking about.

            You can deduct taxes paid to foreign governments, even as a private citizen.

            • Re:Okay... and? (Score:5, Insightful)

              by ArmoredDragon (3450605) on Saturday August 23, 2014 @09:29PM (#47739779)

              You can deduct it from your income, just the same as if it were a business expense, but they still tax you on that money anyways. If you had made that money inside of the US instead of somewhere else, you'd be taxed quite a bit less.

              Or to put it another way, that's just sugar coating the fact that you're still really being taxed twice just for the privilege of having a US citizenship, even if you've never had anything to do with the US (which is why the US is pretty much the only country whose citizenship people will renounce for tax purposes.)

            • Re:Okay... and? (Score:5, Informative)

              by khchung (462899) on Saturday August 23, 2014 @10:48PM (#47740063) Journal

              /Personal income is likely to get double taxed, but that's not what we're talking about.

              You can deduct taxes paid to foreign governments, even as a private citizen.

              Which is the entire point, which, it seems, everyone rebutting GP missed.

              If you are an American, working in country X, and paying $Y tax in country X. If $Y is less than the tax $Z you would have paid in America, then you need to pay American Govt $Z-Y (i.e. Z was deduct, which is your point), even though your work, your job and your company have absolutely no relationship with America. You paid $Z-Y just for the privilege of being an American citizen.

              If you were from most other country in the world, working abroad in country X, then you pay $Y tax in country X, and then END OF STORY.

              Most of countries in the world don't tax their citizens working and living abroad at all, which was GP's point, there is nothing to deduct.

          • by crazyvas (853396)

            To add to that: generally, personal income is not double taxed either in this respect. Anything one hears to the contrary is usually political FUD.

            Quote below from IRS. Heck, they even point out how to give them the least of your money. http://www.irs.gov/Individuals... [irs.gov]
            --------
            If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

            Taken as a deduction,

            • Re:Okay... and? (Score:5, Informative)

              by ArmoredDragon (3450605) on Saturday August 23, 2014 @09:52PM (#47739865)

              To add to that: generally, personal income is not double taxed either in this respect. Anything one hears to the contrary is usually political FUD.

              That's very much incorrect. It's treated as a deduction, which means you still pay the US tax anyways, in addition to the foreign tax.

              Say you live in Australia and made $200,000USD one year. Australia would tax roughly $68,500USD off of it. That leaves $131,500 to you. The US then taxes you on that amount. How much of that you pay in US taxes depends on the source of the income, and how you're employed. If you're self employed, your tax liability for that amount is 28% base plus 16% to make up for US payroll taxes (your typical US worker sees about 8% payroll taxes and the employer pays the other half, but since you have no employer you have to pay the whole thing.) If this is earned income (i.e. not dividends, not capital gains, not income made from charging rent) then you're liable for about $36,500 of it, otherwise you're liable for the whole thing.

              So yeah even though you're potentially taxed less, you're still very much taxed twice, possibly even completely double taxed depending on how you make your money.

              This is why some people who make a lot of money overseas and have jack diddly to do with the US will go out of their way to renounce their citizenship. The US really is the only country that actually sends you a bill just for being a national, regardless of whether or not you make use of its utilities.

              • by compro01 (777531)

                That's very much incorrect. It's treated as a deduction

                Read the site.

                If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same income, you may be able to take either a credit or an itemized deduction for those taxes.

                You're assuming it is always option 2 (acts as a deduction), and ignoring option 1 (acts as a credit).

          • by superwiz (655733)
            Why would that be a rebuttal? The money is still earned on territory outside of the US. It's invested outside of the US. Why should US collect taxes on non-US activities?
      • Re: (Score:2, Informative)

        by Lawrence_Bird (67278)

        Fail.

        They are paying taxes on them. In the domiciles abroad. Near the end of TFA is:

        The report also found that “28 these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.”

        It is conveniently politically correct to refer to other countries with lower tax rates as "tax havens". The reality is if the US tax rates we

        • by thaylin (555395)

          Fail.

          They are paying taxes on them. In the domiciles abroad. Near the end of TFA is:

          The report also found that “28 these corporations reveal that they have paid an income tax rate of 10 percent or less to the governments of the countries where these profits are officially held, indicating that most of these profits are likely in offshore tax havens.”

          It is conveniently politically correct to refer to other countries with lower tax rates as "tax havens". The reality is if the US tax rates were at (or at least near) the foreign rates than funds which could be repatriated would be. Note the word could. No company would bring home 100% as they are operating businesses overseas and need to invest there too.

          0 is 10% or less

        • by lucm (889690)

          No company would bring home 100% as they are operating businesses overseas and need to invest there too.

          Especially if they are held hostage like Nokia in India.

    • by gbjbaanb (229885)

      because they don't pay tax on it there either.

      • Re:Okay... and? (Score:5, Insightful)

        by BitterOak (537666) on Saturday August 23, 2014 @04:32PM (#47738105)

        because they don't pay tax on it there either.

        But shouldn't that be up to the foreign countries where the money is earned? If a country doesn't want to tax earnings in its borders, that's their business. It doesn't mean the US or any other country should have a claim on it.

        • by Trepidity (597)

          If it's earned there, yes, though that's not always the case. Companies play a lot of games with where they choose to book expenses and income. Lots of companies are officially earning a lot of money in places like Luxembourg and Ireland that is really earned elsewhere.

          • all the more reason to end the stupid tax code that we have. I had a theory I put together the other day, im sure im not the first but hear me out

            What if we had a 1 penny tax on transactions, any transaction. For example there are 300 million bank transactions in the country a day. thats 30 million in taxes per day, JUST on bank transactions.

            add in all the rest, fast food, shopping plazas, and wallstreet with micro/nano transactions

            i need to do some more of the math, but if we add up 1 penny to all
            • by lgw (121541)

              And how would subscriptions work? And why wouldn't everything be a subscription? A VAT can be made to work, but this is so game-able.

              Plus, you're missing the key fact about government: they never give up a tax. Any tax you propose will be in addition to existing taxes, not in place of them.

            • What if we had a 1 penny tax on transactions, any transaction. For example there are 300 million bank transactions in the country a day. thats 30 million in taxes per day, JUST on bank transactions.

              Alas for your theory, we don't have ten cents to the dollar in the USA. 300 million bank transactions is only $3 million.

              Note, by the by, that $3M is about enough money for 25 seconds of Federal spending....

        • Re:Okay... and? (Score:5, Informative)

          by Notabadguy (961343) on Saturday August 23, 2014 @04:39PM (#47738147)

          RTFA.

          -Microsoft develops product in U.S, generating tax credit for R&D.
          -Microsoft shifts ownership, or "Profit Rights" of product off-shore, to say....The Bahamas.
          -Microsoft Bahamas subsidiary sells U.S developed product to Americans.
          -Microsoft Bahamas claims all profit. Microsoft America gets all Tax Credits.

          And that's how they avoid paying taxes. It's legal. It might not be "right," but it's legal, and won't change until our nation's useless politicians do something about it. This debate has been going on for a decade or more.

          • Re: (Score:3, Insightful)

            by BitterOak (537666)

            RTFA.

            -Microsoft develops product in U.S, generating tax credit for R&D.

            And paying salaries to U.S. employees who pay income tax on it and spend their money in the US, thereby also paying US sales taxes.

            -Microsoft shifts ownership, or "Profit Rights" of product off-shore, to say....The Bahamas.

            Which only makes sense, since the US is one of the few countries in the world to tax people's oversea earnings. Only makes sense then that people and companies would move those profits offshore. If tax policies in the US were more reasonable, Microsoft wouldn't have to do that.

            -Microsoft Bahamas subsidiary sells U.S developed product to Americans.

            On which those Americans pay sales tax.

            -Microsoft Bahamas claims all profit. Microsoft America gets all Tax Credits.

            But as you said in your first part: the tax credits are for R

            • Re:Okay... and? (Score:5, Insightful)

              by Microlith (54737) on Saturday August 23, 2014 @10:18PM (#47739973)

              And paying salaries to U.S. employees who pay income tax on it and spend their money in the US, thereby also paying US sales taxes.

              The 1% pushing the tax burden off on the 99%, who can't play international games with their finances.

              Which only makes sense, since the US is one of the few countries in the world to tax people's oversea earnings.

              No, that's not relevant. They play a shell game to make sure that all earned profits are earned in areas with little to no tax, then claim they made no profits. Or, if you're GE, you claim you made a $1B loss while reporting billions in profits to your shareholders.

              If tax policies in the US were more reasonable, Microsoft wouldn't have to do that.

              Like what, pledging fealty to corporations and letting the people of the country subsidize their existence?

              On which those Americans pay sales tax.

              Which helps local municipalities only - ignoring that sales taxes are regressive.

              But as you said in your first part: the tax credits are for R&D, not for making profits!

              Indeed, they claim the tax credits and losses in the US, but the profits outside. It's a massive scam, really.

            • by jader3rd (2222716)

              -Microsoft develops product in U.S, generating tax credit for R&D.

              And paying salaries to U.S. employees who pay income tax on it and spend their money in the US, thereby also paying US sales taxes.

              That is so incredibly irrelevant. We're talking about the taxing of one legal entity, don't try and push the conversation to knock on affects to other legal entities.

              Oh, what the heck, let's talk about those other legal entities. If Microsoft paid all of the taxes from revenue generated in the US, those employees would have a lower tax bill, and could have better lives. As a matter of fact, perhaps all citizens of the US would have a lower tax burden. That might really help those who are just trying to find

          • by Livius (318358)

            They should have forfeited and been required to repay any research credits or expense deductions when the intellectual property was sold.

            But it didn't happen by accident. Lawmakers knew perfectly well what they were doing.

    • by alen (225700)

      because washington state wants to tax every penny microsoft makes around the world

    • by Livius (318358)

      If the money actually is abroad, then it shouldn't be taxed.

      But I have a feeling there's something about the definition of 'abroad' that we might be missing.

    • by TubeSteak (669689)

      Why should they repatriate it? What's wrong with keeping money earned abroad, abroad?

      The tax law, as originally written, once required companies to remit the difference between local taxes and US taxes.
      So if Irish taxes are 10% and US taxes are 25%, Ireland gets its 10% and the USA gets 15%.

      Then the law was changed so that as long as the money stays overseas, [Company] can defer having to pay that 15%.

      Instead of actual business being conducted overseas, the majority of those deferred earnings are the result of transfer pricing.
      US Company will give its I.P. to an overseas subsidiary and then

    • by Richy_T (111409)

      Unfortunately, there's a political agenda in the current climate that is pushing that abiding by tax laws which means paying less taxes is the same as tax evasion and is tantamount to stealing. This witch hunt is often lead by those who wrote the laws in the first place.

    • What I am confused about is how this is happening. I keep hearing on slashdot that the US has the lowest tax rates for corperations and the rich so how come it is cheaper (tax-wise) to go to another country - especially since from what I have read here, the US treats it's employees the worst as well as underpays them while stealing their benifits.

      Surely, those comments were not just US hating propaganda?

    • Why single out Microsoft? Many multinational corporations have overseas divisions and not all income is brought home to be taxed, then sent back abroad to pay the workforce.

    • Why should they repatriate it? What's wrong with keeping money earned abroad, abroad?

      A main issue is that when the money is abroad, it is being invested abroad, instead of coming home and investing in projects in America.

    • by hairyfeet (841228)
      Look up "Double Dutch" and "Irish Whip" tax schemes to see why, these megacorps have it set up so it doesn't matter where the money is made, by the time they get done bouncing it around its socked away tax free.
    • Re:Okay... and? (Score:5, Interesting)

      by Fjandr (66656) on Sunday August 24, 2014 @02:28AM (#47740663) Homepage Journal

      Most of it is not actually earned abroad, due to accounting practices. MS USA sold all of their IP to MS Ireland, and pays MS Ireland a fee for every copy of MS software sold in the USA. That fee is almost certainly for an amount nearly (or actually) equal to the sales price. As a result, they claim a write-off on every title sold that's just about equal to that title's sales price. As a result, MS USA says they earned nothing on those titles. It's all based on technicalities that are unavailable to real people. Only corporations are allowed to account for profits and losses in such a way as to reduce their tax bills to nothing.

  • Why should they? (Score:2, Interesting)

    by doghouse41 (140537)

    So why this assumption that they should be paying tax on this money to the US taxman?
    Presumably it was all earned outside of the US.
    As a UK taxpayer, I'd be much happier if they would pay UK tax on it (maybe we should offer them a deal - 1% of something is a better deal than 50% of nothing ;-)
    And no doubt French, German, Japanese, Australian, etc tax payers would feel the same way.

    So what's so special about the Americans?

    • We are the ones who get a "Participation Trophy" just for showing up.

    • Globalization is interesting.

      Say my manager is from the USA (he was, for about 3 years, now I have another manager who's from Denmark). I live in Eastern Europe.
      My manager gives me a project. I, working in Eastern Europe, do the heavy lifting. My manager sits on his ass and asks "are we there yet?" every day, because it's all he's able to do. When work is finished, who's actually making the profit?
      With hardware, it's relatively easy. The product is build *here* so the profit is registered *here*. But with s

  • by EdmundSS (264957) on Saturday August 23, 2014 @06:12PM (#47738699)
    Microsoft are simply copying what Apple does. IBM and others are doing it too [bloomberg.com].

    They're all hoping that they can get the tax law changed so that they can repatriate the profits without paying the current tax rate.
  • by jcr (53032) <.jcr. .at. .mac.com.> on Saturday August 23, 2014 @08:05PM (#47739347) Journal

    I don't think there's any other country in the world that taxes money coming INTO the country from foreign operations.

    The US tax code is insane.

    -jcr

  • The less you get of it. One of those damn Econ 101 rules.

  • by kimvette (919543) on Saturday August 23, 2014 @08:52PM (#47739601) Homepage Journal

    Wait a minute. Let's follow legal reasoning.

    Corporations are people, right? When a person lives and works overseas, even though the money is earned overseas, they're still supposed to file a return and pay taxes on those earnings, right? How can Microsoft claim legal personhood, and then neglect to pay taxes on their offshore earnings?

  • Notice the numbers in TFA are following the Nokia and Skype purchases from several years ago. Skype cost Microsoft about 8 or 9 billion. Nokia cost Microsoft about 3 billion dollars (50% less than Ballmer paid for the Los Angeles Clippers basketball team, and using his own money).

    In other words, The U.S. based Microsoft Corporation (HQ'd in Reno, NV to avoid paying taxes to Washington State) bought those non-US companies with off-shored income having paid very little tax to anyone, for anything. You and I c

    • by SpzToid (869795)

      one correction to what I just wrote above: Steve Ballmer paid 50% *more*, not less, for Nokia (about 3 billion dollars total) than he did for the LA Clippers basketball team (2 billion).

      OK, buying the Clippers was his personal transaction using his own money, and the other was a Microsoft transaction under his authority, having ruined the Nokia Mobile Devices unit in the first place, but let's not try to split any of Ballmer's hair over that detail.

I bet the human brain is a kludge. -- Marvin Minsky

Working...