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Microsoft has publicly disclosed that it is facing a substantial tax dispute with the US Internal Revenue Service (IRS), with the IRS asserting that the tech giant owes $28.9 billion in back taxes for the period spanning from 2004 to 2013, along with associated penalties and interest. This revelation comes after nearly a decade of collaboration between Microsoft and the IRS aimed at addressing questions related to the allocation of income and expenses during those specific tax years.
Microsoft has emphasized that it has made significant changes to its corporate structure and practices since the years under scrutiny. As a result, the issues raised by the IRS are, according to Microsoft, pertinent to the past but not reflective of its current practices.
"The IRS recently sent us a series of Notices of Proposed Adjustment, sharing with us for the first time detailed information and explanations of their views about the issues in question," Microsoft stated.
The tech company clarified that while the IRS's proposed adjustments are substantial, they do not constitute a final determination. Importantly, Microsoft noted that the taxes it has paid under the Tax Cuts and Jobs Act, which brought about significant changes to US tax laws, have not been factored into the proposed adjustments. As a consequence, the company believes these tax law changes could potentially reduce the final amount owed by as much as $10 billion.
The heart of the disagreement between Microsoft and the IRS lies in the area of transfer pricing, which involves how the company allocated profits among various countries and jurisdictions during the period from 2004 to 2013. Microsoft pointed out that the IRS has established regulations for transfer pricing, including specific arrangements referred to as cost-sharing.
Despite the IRS's assertions, Microsoft is resolute in its intention to appeal the decision. The company firmly believes that its position adheres to IRS rules and regulations, and it claims to be supported by legal precedents.
The process of resolving this tax dispute with the IRS is expected to be protracted. Microsoft anticipates that it will involve collaboration with the IRS Appeals division over several years. If, at the end of this process, an agreement with the IRS is not reached, Microsoft is prepared to contest any unresolved issues through the legal system.
Throughout this challenge, Microsoft has affirmed its commitment to working with the IRS, expressing the hope of finding a mutually agreeable resolution to the matter. The company has also stressed its strong track record of adhering to IRS rules and fulfilling its tax obligations globally. Furthermore, Microsoft underscored its significant contributions to US corporate income taxes, noting that it has paid more than $67 billion since 2004.
By fLEXI tEAM