Denmark to slap Microsoft with $1B in taxes after funneling profits overseas

By on March 4, 2013, 1:30 PM

Microsoft's clever accounting techniques may have been a little too clever, at least according to Danish authorities. Denmark officials are considering a tax levy of 5.8 billion kroner -- or roughly 1.01 billion USD at current exchange rates -- over Microsoft's 2002 acquisition of financial software-maker Navavision. According to the report (Danish), this is Denmark's largest ever tax case.

Reportedly, Microsoft has been using Carribean-based shell companies to operate Navavision's enterprise planning and account units. This has enabled the Redmond software maker to funnel its profits away from Denmark -- a country with a relatively modest 25 percent corporate tax rate. Naturally though, it's difficult for any country to compete with commonly used tax havens like Bermuda, where the effective corporate tax rate is zero percent.

That may be an unsavory-sounding tactic, but Microsoft isn't the first company to leverage Bermuda as a tax haven since it remains a legal practice in the U.S. and much of Europe. Apple, Google and others have also been scowled upon for taking advantage of the same loop holes as Microsoft. In fact, Google saved $2 billion in 2011 via a similar set of techniques, sending about $10 billion of its profits to Bermuda.

Microsoft and Danish officials have purportedly engaged in talks regarding the enormous tax bill. The $1.01 billion figure includes not only back taxes, but penalties and fees as well.

Incidentally, Denmark decided last week to lower its tax rate from 25 percent to 22 percent.




User Comments: 19

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TomSEA TomSEA, TechSpot Chancellor, said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

MilwaukeeMike said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

Just because everyone else is doing it doesn't make it ok. If Denmark chooses to only prosecute one company that's their decision. The bigger questions is, if everyone is doing it is it really illegal? I'd be surprised if a company like MS purposely broke Danish law and tried to keep a billion dollars in taxes. I'll bet there are some special circumstances that are making them go after MS.

Tygerstrike said:

Once again the giant corporations are doing as they do. Finding every way the can to screw the govt out of its rightful taxes. For shame MS!! Hasnt the American populace supported you? Havent they purchased your products. Do you or do you not hold your company headquarters in the US? How dare Microsoft screw not only the American but the Danes as well. I say we as the consuming public hold companies like Microsoft,Google,and Apple accountable. We dont get to say "Oh Im not going to pay that much in taxes" We either pay them or they come take your pretty toys. These companies NEED to be held accountable. I hear ppl complaining that the govt is in debt. How much of that debt would exist if the major companies actually paid what the owed?

Alvaro Alvaro said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

They're probably trying to set a precedent, so other companies reconsider their practices. It's easier for Denmark to win this if they focus on only one company.

Guest said:

Go back to the USSR TygerStryke. Oh wait, it's economy collapsed.

Khanonate said:

Pros and Cons, what we need is a happy medium...

Guest said:

Just stay in the USSA, the economy will collapse. And USSA is not a mistype, figure it out.

Guest said:

USSR economy did not collapse, it was purposely destroyed by the US and several other countries, to make their citizens believe it was ineffective. Now they can screw their citizens how they like, and hire cheap trolls to post in forums things like "oh you don't like it? well go to commie cuba then". USSR was a very bad example: it had no jobless, no homeless, free education, free homes, free medical service AND the second largest economy in the world. The only reason US corporations and government cared for Americans before was because there was USSR, it was a competition. However, US decided to win the competition in a non-fair fight (a very common practice for them), and destroyed the competitor. Now poor Americans see the consequences of the first law of their own market economy - without competition comes monopoly, stagnation and decay. Now they have China, but they will be harder to break than poor naive Russians who did not believe anti-American propaganda enough.

ArthurZ ArthurZ said:

I still do not get what Microsoft did illegal. And why the global economy does not work everywhere? Shouldn't it be one corporate tax for all?

TomSEA TomSEA, TechSpot Chancellor, said:

"USSR economy did not collapse, it was purposely destroyed by the US and several other countries, to make their citizens believe it was ineffective."

ROFL! That's the funniest damn thing I ever heard. Missing the old days, comrade?

Tygerstrike said:

@Guest

How exactly is expecting any company to pay their taxes equate either directly or indirectly as a example of the USSR? Your comment really doesnt make sense. I believe if I have to pay taxes on the money I earn, then fair is fair. These companies should be held accountable for their taxes. Just because they get away with shipping their profits to offshore bank accounts just so they can dont have to pay taxes doesnt make it right.

H3llion H3llion, TechSpot Paladin, said:

Once again the giant corporations are doing as they do. Finding every way the can to screw the govt out of its rightful taxes. For shame MS!! Hasnt the American populace supported you? Havent they purchased your products. Do you or do you not hold your company headquarters in the US? How dare Microsoft screw not only the American but the Danes as well. I say we as the consuming public hold companies like Microsoft,Google,and Apple accountable. We dont get to say "Oh Im not going to pay that much in taxes" We either pay them or they come take your pretty toys. These companies NEED to be held accountable. I hear ppl complaining that the govt is in debt. How much of that debt would exist if the major companies actually paid what the owed?

Rightful? What? ^^

howzz1854 said:

They should go after Amazon too. just because everyone is doing it doesn't make it ok. but from the way things operate now-a-days, seems it's only illegal when one get caught.

Darth Shiv Darth Shiv said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

The practice of funneling profits overseas to avoid domestic taxation is being scrutinised in Australia as well. Apple in particular is being targeted but I imagine many more are in the spotlight.

[link]

TS-56336 TS-56336 said:

This is a farce, it will never succeed. Once Microsoft purchased the company and IF they paid taxes in Denmark they have the right to sell off any part of the company they want. Unless Denmark is named as part of the Copyright for the Software they have NO CASE at all. Microsoft owns the Software and can sell that software and since software is NOT a physical property it can not be tied to the Country of Denmark like a piece of property can.,

Darth Shiv Darth Shiv said:

This is a farce, it will never succeed. Once Microsoft purchased the company and IF they paid taxes in Denmark they have the right to sell off any part of the company they want. Unless Denmark is named as part of the Copyright for the Software they have NO CASE at all. Microsoft owns the Software and can sell that software and since software is NOT a physical property it can not be tied to the Country of Denmark like a piece of property can.,

That's all well and good to say that. But what you can't do is setup a set of stores and do some creative accounting to make the profits on your sales from that store are not taxable in the country you are selling in. Some countries don't like that. Denmark is making a stand against companies setting up shop and selling to their people and piecemeal choosing the taxation system the company wants to abide by. Of course that is at most only fair for profits from Denmark sales...

PinothyJ said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

Not really. They get the money from Microsoft and they have a legal precedent which makes it a million times easier to then trickle down to the smaller companies.

It all makes sense?

Tygerstrike said:

@Darth

You are 100% correct. MS ships their profits off daily to a offshore account and pays their operating expenses from another account. Thats why they were cslling it a shell game. The Danes are not the only country going after corporations who send profits offshore instead of paying their fair share in the country they are in. Just recently Germany went after a few companies. Australia is going after Apple. The US started an investigation on multiple corporations. Even the elected officials are making it a goal to go after these ppl. Because at its base, its unfair of any company to NOT pay what they owe. A few govt have already been looking into ways to force these companies to pay on what they earn in any country.

Tanstar said:

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

So is Denmark pursuing other companies who use this common practice or singling out Microsoft? If they're just going after Microsoft, I think MS might have a pretty good legal argument on their hands.

Just because everyone else is doing it doesn't make it ok. If Denmark chooses to only prosecute one company that's their decision. The bigger questions is, if everyone is doing it is it really illegal? I'd be surprised if a company like MS purposely broke Danish law and tried to keep a billion dollars in taxes. I'll bet there are some special circumstances that are making them go after MS.

The article said it was legal in the U.S. and much of Europe. If it was legal in Denmark and they've made it illegal and are now trying to punish MS for it retroactively the question becomes are Ex post facto laws legal in Denmark? They aren't legal in the U.S. but may be legal there. They are a slippery slope!

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