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Microsoft yesterday revealed that U.S. Internal Revenue Service (IRS) has recently sent them a series of Notices of Proposed Adjustment (NOPAs) related to the audit covering 2004 to 2013. As per the notices, Microsoft owes an additional $28.9 billion in tax for 2004 to 2013, plus penalties and interest. Also, the $28.9 billion number from IRS does not consider the taxes already paid by Microsoft under the Tax Cuts and Jobs Act (TCJA). So, the final tax owed under the IRS audit may be around $18.9 billion. Obviously, Microsoft is going to appeal against these notices and the process is expected to take several years.
“We believe we have always followed the IRS’ rules and paid the taxes we owe in the U.S. and around the world. Microsoft historically has been one of the top U.S. corporate income taxpayers. Since 2004, we have paid over $67 billion in taxes to the U.S,” wrote Daniel Goff – Corporate Vice President, Worldwide Tax and Customs, Microsoft.
The main disagreement between Microsoft and IRS is the way Microsoft allocated profits during this time period among countries and jurisdictions. This common practice by multinational companies is called transfer pricing and the IRS has established cost-sharing regulations to do the same.
Even if Microsoft receives unfavorable decision from the IRS Appeals process, Microsoft can contest them through the courts.