Microsoft owes the US government US$29 billion in taxes! But how did they get there?

Microsoft, one of the world’s largest tech companies, is in some serious trouble with the United States’s Internal Revenue Service, the IRS, over back taxes.

The IRS is responsible for collecting federal taxes and enforcing tax laws. 

Now according to the IRS, Microsoft owes US$28.9 billion in back taxes for the years 2004 to 2013. During this time, the IRS was trying to crack down on corporations using tax havens to avoid paying taxes. 

A tax haven typically refers to a country that has very low taxes and no residency requirements for foreign businesses and individuals. These countries appeal to corporations and high net worth individuals.

I’m sure you’ve heard it mentioned in movies, people talking about their accounts in the Cayman Islands etc.

But of course, the IRS doesn’t like businesses that avoid paying taxes, or that don’t pay as much as they should.

And, tech companies specifically have been criticised for years for reporting lower profits in high-tax countries and higher profits in lower-tax countries to minimise their tax burden.

So that brings us to this dispute between Microsoft and the IRS. The IRS claims that Microsoft was using tax havens from 2004 to 2013 to minimise their tax bill, and now owes US$28.9 billion in back taxes plus interest and penalties.

Now, of course, Microsoft disagrees with the IRS. But it’s the total they have a problem with, not the fact that they do owe back taxes.

According to Microsoft, the IRS’s total doesn’t factor in the US$10 billion that they already paid, which would bring their bill down significantly. Because keep in mind that they have to pay interest on what’s owed. 

Mircosoft said that it will file an appeal, but that’s likely to take several years before it gets settled… and that’s the bottom line.