Why Microsoft Is Refusing To Pay A Massive $28.9B IRS Bill For Back Taxes
Of course, you also could point out that the extreme sums of money at stake are also a reason for people to continue carrying on these arguments. Extreme sums of money like $28.9 billion US dollars—that's billion, with a B. That's how much money the United States Internal Revenue Service is demanding from Microsoft in the form of unpaid back taxes, "not including penalties and interest," which means the final bill will probably be even higher.
So what's the deal, here? Has Microsoft been shirking its obligations to the United States? Well, maybe, if you believe the IRS. This announcement regards Microsoft's business from the years 2004 through 2013, and it comes after a decade of talks with the IRS about how Microsoft distributed its profits among countries and jurisdictions. This announcement comes after the agency's decision resulting from those talks.
From Microsoft's Form K-8 filing with the SEC.
The IRS was concerned about how Microsoft managed its "transfer pricing" in this period. Basically speaking, this is a practice that allows companies to decide where they will allocate profits and expenses between their operations in different regions. It doesn't take a genius to figure out that companies could easily abuse this practice to minimize their tax obligation by reporting profits in low-tax territories, and so on.
Microsoft, for its part, says that it "strongly believes it has acted in accordance with IRS rules and regulations, and that its position is supported by case law." It also points out that the proposed adjustments—that means the $28.9B USD—do not include some $10 billion that the company paid in taxes under the Tax Cuts and Jobs Act passed by President Trump.
Ultimately, the result is that the IRS says that it believes Microsoft owes back taxes big time, to the tune of the aforementioned $28.9 billion dollars. Microsoft says it "disagrees with the proposed adjustments and will vigorously contest" the IRS' decision, both through administrative appeals and, "if necessary, judicial proceedings." The house of Windows and Xbox says that it doesn't expect a final resolution of this problem in the next 12 months.
