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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

September 20, 2012 at 9:10 AM

Report: Microsoft avoided billions in taxes through aggressive international maneuvers [updated]

[Updated with statement from Microsoft below.]

Bloomberg is reporting that a U.S. Senate committee has issued a memo saying that Microsoft used aggressive international maneuvers to avoid billions in taxes.

According to Bloomberg (which says the Senate report also mentions Hewlett Packard as another company engaged in similar practices):

The report, released in advance of a 2 p.m. hearing in Washington today, said Microsoft used transactions with subsidiaries in Puerto Rico, Ireland, Singapore and Bermuda to save at least $6.5 billion in taxes. …

Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, didn’t accuse the companies of acting illegally.

“These loopholes and abuses exact a tremendous cost,” Levin told reporters at a briefing today. “What these gimmicks do is shift the burden of taxes onto citizens and business who don’t use armies of lawyers and accountants.”

The text of the Senate committee memo is on Levin’s website here. (Scroll to the bottom of the page.)

Read the Bloomberg article here.

Update 10:34 a.m.: Microsoft issued the following statement:

Microsoft has a complex business and we must comply with the complicated tax code of the United States, resulting in an exceedingly complex tax structure. That is why we’ve advocated for reforms to simplify the US tax code and make it more competitive with the rest of the world.

One of the business imperatives faced by Microsoft and many US-based businesses today is that we must operate in foreign markets in order to compete and succeed as a company. Foreign revenue growth helps support the growth of our U.S. operations, creating additional U.S. jobs and supporting an economic ripple effect that leads to greater growth in local communities. Our foreign growth has allowed Microsoft to increase our footprint in the U.S.

According to a recent study of Microsoft’s economic impact, we increased our employment by 13.2 percent in the United States from 2007 and 2009. Through our employment, compensation, and purchases of U.S. goods and services, Microsoft’s operations supported roughly 462,000 U.S. jobs. In Washington State specifically, Microsoft has been the single largest contributor to economic growth since 1990; our impact on the state accounted for 32.4 percent of the total gain in state employment.

To compete and grow, we operate a global business that requires us to operate in foreign markets. In conducting our business at home and abroad, we abide by U.S. and foreign tax laws. That is not to say that the rules cannot be improved–to the contrary, we believe they can and should be. US international tax rules are outdated and not competitive with the tax systems of our major trading partners. We believe the US should reform its tax rules to support the ability of worldwide American businesses to compete in global markets and invest in the US.

According to Microsoft’s 10-K filing with the SEC, the company’s effective tax rate for the fiscal years 2012 and 2011 were approximately 24% and 18%.

In that filing, Microsoft also noted: “Our effective tax rates were lower than the U.S. federal statutory rate primarily due to earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico, which have lower income tax rates.”

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