A new compliance report shows the disconnect between where the company makes its money and where it pays its taxes.
A new mandatory compliance report released by Microsoft shows how it reports its profits in different European countries to reduce its tax bill, The New York Times reports. The document reveals that the software giant reports high revenues in regions with low taxes and reduced profits in countries with higher rates. Microsoft could be the first tech giant to submit such a report and it is likely that others will follow the same tax haven recipe.
Following the suffering caused by the 2008 global financial crisis, Europe adopted a directive in 2021 requiring companies to submit public country-by-country reports. The goal was to better understand where companies claim to make their money for tax purposes versus their actual economic activities.
Microsoft’s report shows a clear discrepancy between the two. For example, the company said it earns nearly 40 percent of its global revenue ($196 billion) in tax-friendly Ireland, but only 0.5 percent in Germany, which is Europe’s largest market but has a much higher tax rate. It also posted low profit margins in its two other major European markets, France and Italy.
Microsoft felt compelled to publish a blog post about the report, saying that “some of the numbers may seem surprising at first.” The company said it complies with all relevant laws of each country and the European bloc as a whole. Microsoft also said it was subject to payroll, value-added and property taxes, in addition to income taxes.
“Microsoft pays the taxes we owe in every country where we operate. We know there are strong opinions about whether companies pay enough, and we believe providing that context leads to a more informed conversation,” said Jeff Bullwinkel, the company’s vice president and deputy general counsel in Europe. Bullwinkel said Microsoft had the second highest corporate tax bill in the world (after Apple), at $28.7 billion, including $6.3 billion in the EU. It also highlighted $176 billion and $89.2 billion in capital spending and R&D across all its markets, respectively.
Still, the company’s use of tax shelters allowed it to avoid significant taxes that could have contributed to social programs in countries where it makes the most money. In total, U.S. companies have avoided paying at least $40 billion from these havens, according to a separate New York Times report.
