8 ms·
tl;dr Danish: Microsoft bought the Danish Navision Software (that made accounting software, now called Dynamics NAV) for roughly 10.8 billion kroner in 2002. S
by flexie 14y ago
tl;dr Danish:
Microsoft bought the Danish Navision Software (that made accounting software, now called Dynamics NAV) for roughly 10.8 billion kroner in 2002. Shortly thereafter, Microsoft sold the rights to the software to Microsoft's Irish subsidiary at a price which the Danish tax authorities think is too low. The Danish tax authorities now claims taxes amounting to 5.8 billion kroner from Microsoft based on the price they think would have been right.
It's a classical transfer pricing case.
- bfwi 14y agoThe article also states that the irish subsidiary is owned by companies in Bermuda and British virgin islands, which is where the profits go. Is it easy for Microsoft to get this money back into the US? And how?
- drucken 14y agoIf you mean the cash, why would they need to get these funds back? Earnings are posted from the group. Credit lines and capital market borrowing similarly have limited ties to jurisdiction. Regulatory filings can be arranged to not post detailed transfer pricing information. If they ever want to pay a dividend, the cash they have on hand for on-going concerns should more than cover it. Where it does not, they can have it "loaned" from the foreign subsidiaries and gain even more tax efficiencies... Otherwise, much of the time, they can just leave it in control of Bermudan and Irish accounts; at least, until debt-ridden, revenue-starved, middle-class squeezed Western governments start moaning a little too loudly and the tax accountants and lawyers prepare to roll out the next tax avoidance schemes down the closest tax haven rabbit holes!
- lifeisstillgood 14y agoThis is one that bothers me - UK government is chairing the G20 and is pushing "fixing international corporate taxation" It's popular amoungst all the member nations, but there seems to be absolutely no clue what to actually do If anyone has a suggestion there are a lot of people waiting to listen ?
- vellum 14y ago>UK government is chairing the G20 and is pushing "fixing international corporate taxation" That's rich, considering London is one of the biggest tax havens around. http://www.guardian.co.uk/money/2007/jul/08/tax.business1 http://www.guardian.co.uk/money/2007/jul/08/tax.business1
- Silhouette 14y agoDid you realise that the article you linked was from 2007? I think it's safe to say that the political and economic landscape has changed a little since then.
- vellum 14y agoI looked around and they still have non-domicile rule. Since 2008, they added an annual £30,000 fee, but that's nothing if you're rich. http://www.theaustralian.com.au/news/world/london-is-a-magnet-for-the-worlds-super-wealthy/story-fnb64oi6- http://www.theaustralian.com.au/news/world/london-is-a-magne... http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom1226349592779 http://en.wikipedia.org/wiki/Taxation_in_the_United_Kingdom1...
- lifeisstillgood 14y agoEvery western government has off shore havens they give a nod and wink to - but it's this very prisoners dilemma that the G8 etc want to solve.
- arethuza 14y agoMight be an idea for the UK to close down all of the offshore tax havens we control first before asking others to do the same....
- eurleif 14y agoSeems like it might be kind of a prisoner's dilemma situation: the best outcome is if everyone shuts down their tax havens, but you're individually worse off if you shut down yours and the other players don't, so no one wants to do it.
- jobu 14y agoMuch of it comes back as invesments in US businesses, real estate, and stock markets by these foreign subsidiaries. I don't think they're actually able to bring it back into the parent companies in the US, but with good accountants and lawyers it wouldn't surprise me.
- subsystem 14y agoAccording to themselves they "spend it overseas". http://www.winamericacampaign.org/ http://www.winamericacampaign.org/
- prostoalex 14y agoUnless it's immediately distributed as dividend or used for acquisition, the money would be subject to US corporate taxes. Microsoft actually borrows in the US http://www.smartmoney.com/invest/bonds/what-s-behind-microsoft-s-bond-offering/ http://www.smartmoney.com/invest/bonds/what-s-behind-microso... as it's not in shareholders' best interests to initiate a money transfer to a US account.
- vellum 14y agoThey could wait around for a tax-repatriation holiday. There was one in 2004 that brought in about $312 billion. Companies paid 5% tax, instead of 35%, on all foreign revenue brought back to the states. The theory was that companies would use that money to create jobs, but instead they bought back a lot of stock. So it's unlikely that there will be another one in the near future, unless the political winds change. http://online.wsj.com/article/SB10001424052702303339904576404183763158882.html http://online.wsj.com/article/SB1000142405270230333990457640...
- jacquesm 14y agoWhat they should do instead of a holiday is simply seize assets statesside with rouhgly the same bookvalue until the money was brought in and taxed in the normal way. That would close this loophole pdq. All this pussyfooting around just underscores that private individuals are on the hook but as a company you can do just about anything. I don't like taxes, I disagree with plenty of them, I disagree with how they are spent. But I still pay my taxes and the fact that I pay more tax on my income (which is a very small fraction of their turn-over) than some well known multi-nationals has me seriously ticked off.
- gadders 14y agoNah, what should happen is that governments lower their extortionate tax rates so that these avoidance measures aren't neccessary. http://en.wikipedia.org/wiki/Laffer_curve http://en.wikipedia.org/wiki/Laffer_curve
- wavefunction 14y agoThe Laffer curve has never been shown to be true, and in fact has always been shown to be false in the real world.
- davidw 14y agoSo... if it's "not true", what sort of curve would you get if you plot government revenue as a function of tax rates? The Laffer curve makes a lot of sense. What is difficult about it, and where politicians are likely to try and push their own agenda, is finding where revenues are maximized, which is a far more difficult proposition than proposing that there is a revenue curve with a high point somewhere in the middle, which makes intuitive sense.
- wilfra 14y agoNot without paying taxes on it. Companies like Apple, Facebook and Google have many billions of dollars in foreign banks which they aren't bringing back because they'd have to pay huge tax bills if they did. There has been a lot of pressure on the government for awhile to allow a 'holiday' where this money could be brought back tax-free temporarily, but nothing has happened yet.
- OGinparadise 14y agoIs it easy for Microsoft to get this money back into the US? And how? Well, that's not something you want to do to Denmark, they are a member of EU and can make MS's life miserable. Plus, MS has so many assets, all over the world. They can contest it, appeal but then will pay.
- skywalk 14y agoclassic double irish setup: https://en.wikipedia.org/wiki/Double_Irish https://en.wikipedia.org/wiki/Double_Irish
- Charlesmigli 14y agoThanks a lot for the traduction. This summary has been added to tldr.io, see here http://tldr.io/tldrs/5134660e28b6ae385b0000de/microsoft-owes-denmark-1bn-in-taxes http://tldr.io/tldrs/5134660e28b6ae385b0000de/microsoft-owes...
- arethuza 14y agoThey also made what is now Dynamics AX - which is Microsoft's high end ERP application.
- raverbashing 14y agoFor reference, 1 Danish Krone == 0.17 USD today
- goggles99 14y agoWow, 5.8 billion on sale of what was originally a 10.8 billion purchase? That sounds steep. This sound like a political trial though based on Denmark wanting to keep outsiders away from it's businesses and sour grapes Denmark has against MS because they moved the business to Ireland.
- jbri 14y ago"Moved the business to Ireland" doesn't (usually) mean that business has actually moved - operating as a subsidiary of a holding company in Ireland is almost always a pure tax dodge.
- fleitz 14y agoI find it ironic that the avoidance scheme MS, GOOG, and APPL employ for European profits is called a double dutch irish sandwich.
- loeg 14y agoI think the 5.8 billion may include late-payment surcharges, given that this happened in 2002 (11 years is a lot of interest).
- flexie 14y agoGranted it sounds high, given that the corporate tax rate was 30 percent 10 years ago. I truly don't believe it's politically motivated, though. I could say a lot of bad things about the Danish tax system, and I do so all the time, but the Danish tax authorities are not known to be corrupt. It might be due to subsequent transactions that the article doesn't mention. Also, since the limitation period is around 5 years in this type of cases, the case may have been going on for several years. It's not possible to say from the article.
- belorn 14y agoWe do not know what the number is based on, as the article do not say so. It might be that the company sale is declared invalid, and any product sales made afterward is thus under danish law. Or it could be taxes of the 10.8 billion purchase but with an increased cost thanks to it now being several year later.
- pdovy 14y agoHow is it that the initial (2002-2013 interest excluded) tax bill is 5 billion kroner, when the acquisition cost was only 10.8 billion kroner? Is the tax rate really that high? I understand that the tax is not on the acquisition itself but rather the transfer of the rights, but surely the market value of those rights should be less than the market value of the entire company at the same point in time.
- oellegaard 14y agoIn Denmark the company taxation is 25%, but it is very likely that a large part of the amount is a fine for doing it, although this is just a guess. Furthermore, when you value a company it could be that their assets are extremely high, but they at the same time have high liabilites. This (although I do not know if it was the case), could lead to a lower price for the company, than the market value of the product.
- jonascopenhagen 14y ago> In Denmark the company taxation is 25% Soon to be 22%.
- mckoss 14y agoI think the article said $10 billion dollars - not kroner for the acquisition (or $60 billion kroner). This sort of tax avoidance feel unethical to me - you have 600 employees in Denmark developing this software, but all the profits are being booked in a tax haven. Microsoft should have to move the developers to Bermuda or Ireland if they want to avoid the Danish tax.
- tanzam75 14y agoGoogle Translate says that Microsoft underpriced Navision software by 11 billion kroner in the "previous income year," and owes 5.8 billion kroner in taxes on that!? That sounds like an income tax dispute on annual earnings. I don't understand Danish, I can't figure this out. The thing is, it's unlikely that Microsoft managed to underreport 11 billion kroner in profits. From what I've read, Navision showed only modest growth, just one in a series of multibillion-dollar acquisitions by Microsoft that failed to work out. Until 2006, Navision was part of Microsoft Business Solutions, which was a breakeven operation at best. The homegrown CRM product exploded in popularity, while the acquired ERP products stagnated. Since CRM is wildly profitable, the only way for Business Solutions to have operated at breakeven was for the ERP products to lose money. Given the poor historical performance, it would take quite the turnaround for Microsoft to have made 11 billion kroner = $1.92 billion on Navision in 2012. I wonder if the Danish tax authority is attempting to apply Microsoft's overall profit margin to calculate a transfer price for Navision? That would really add insult to injury when it comes to Microsoft's sorry history of acquisitions. Sources: (1) "... their market share in their CRM software has increased but their share in ERP has decreased." http://www.technoreporter.com/technology/software/microsoft-dynamics-market-share/ http://www.technoreporter.com/technology/software/microsoft-... (2) "Contrary to the downward trend for its four enterprise resource planning (ERP) brethren, the Microsoft Dynamics CRM product (although still only a fraction of the overall Dynamics revenue) grew significantly in revenue year over year and surpassed the one-million-users mark in 2009." http://blog.technologyevaluation.com/blog/2010/02/15/microsoft-dynamics-crm-much-more-than-meets-the-eye-%E2%80%93-part-1/ http://blog.technologyevaluation.com/blog/2010/02/15/microso...