The WSJ article gives a basic, but slanted description of how it works. Briefly: income earned by overseas subsidiaries is not taxable to the American corporat

The WSJ article gives a basic, but slanted description of how it works. Briefly: income earned by overseas subsidiaries is not taxable to the American corporate parent until those overseas earnings are sent back to America via a dividend. Here, rather than pay a 35% rate on their overseas profits, Microsoft chose to use it to acquire another company, essentially delaying taxation on that income until much later into the future, if ever. Edit: There is no advantage to the reverse (MSEuro buying a US company), since the US-earned income is taxed in the US at the US corporate rates, which are much higher than the European corporate rates. The money would be taxed at a lower rate when repatriated to the Euro owner, but you would have ended up paying the higher tax rate first.