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

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  • 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: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:2, Informative)

    by Lawrence_Bird (67278) on Saturday August 23, 2014 @05:18PM (#47738369) Homepage

    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.

  • 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, 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.

  • by jcr (53032) <jcr@nOspAm.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

  • 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.

  • 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.

  • Re:Okay... and? (Score:4, Informative)

    by tomhath (637240) on Saturday August 23, 2014 @11:21PM (#47740175)

    You can deduct it from your income, just the same as if it were a business expense

    It's a credit against tax due [irs.gov] not a deduction from income. Big difference.

  • 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

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

    by Anonymous Coward on Sunday August 24, 2014 @12:18AM (#47740353)
    Not sure if trolling or ignorant... so I'll give you the benefit of the doubt. Apple pioneered it, but an increasing number of tech companies rig up a series of subsidiaries based in Ireland and the Netherlands and assign their profits to those subsidiaries to escape US taxes, while the parent companies still take advantage of all the perks of basing themselves in the US.

"Consequences, Schmonsequences, as long as I'm rich." -- "Ali Baba Bunny" [1957, Chuck Jones]

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