Tech companies have been adept at avoiding paying taxes, using loopholes to exploit the system to cut down on payouts. However, there is an increasing level of scrutiny on companies as regulators clamp down on tax avoidance practices.
While arguably not the worst offender, Microsoft has run into its fair share of tax problems following seeking to pay less through loopholes. In New Zealand, the company has had to pay $24,748,658 to the country's Inland Revenue.
The amount is a settlement following an investigation into Microsoft's tax business before June 2018. New Zealand's Inland Revenue audited the company over its transfer pricing. These are fees Microsoft pays to other brand divisions for services.
While Microsoft has settled the case, the details of the company's irregularities have not been disclosed. One loophole many companies use to avoid taxes in countries like New Zealand is to overcharge for internal transactions between subsidiaries. This allows companies to under-report profits and pay less taxes.
Microsoft New Zealand confirmed the settlement payment and called it s “tax adjustment”. The company says the dispute is now closed.
Microsoft Tax Problems
This episode goes alongside the company's other tax avoidance issues. The United Kingdom has accused the company of moving £8 billion from the UK to Ireland to avoid paying £100 million in corporate tax.
In 2017, Microsoft was amongst major companies that were investigated by France and Germany. France and Germany believe companies are taking advantage and stealing market share. While Apple is the focus of the new rules, companies like Google and Microsoft are also in the crosshairs.