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.