Microsoft Owes $29 Billion In Back Taxes, IRS Claims

Microsoft could be at risk of a massive financial hit, after the US Internal Revenue Service claimed the software and cloud giant owes tens of billions of dollars in back taxes.

Microsoft revealed in a SEC filing on Wednesday that it had received Notices of Proposed Adjustment (NOPA) from the Internal Revenue Service, for an additional tax payment of $28.9 billion.

Microsoft however said it disagrees and will “vigorously contest” the back tax claim via “the IRS’s administrative appeals office and, if necessary, judicial proceedings.” The appeals process is expected to take several years.

Back taxes

The IRS claimed Microsoft owed the colossal amount of money for the tax years 2004 to 2013.

“On October 11, 2023, Microsoft Corporation announced the receipt of Notices of Proposed Adjustment (“NOPAs”) from the Internal Revenue Service (the “IRS”) for the tax years 2004 to 2013,” the SEC filing revealed.

“The NOPAs were received on September 26, 2023,” said Microsoft. “The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest.”

“As of September 30, 2023, we believe our allowances for income tax contingencies are adequate,” Microsoft stated. “We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings.”

Microsoft said it does not expect a final resolution of these issues in the next 12 months.

But the filing did reveal that the IRS had been auditing Microsoft’s finances for the period covering 2004 to 2013.

Essentially the dispute centres around how Microsoft allocated profits between countries and jurisdictions between 2004 and 2013.

Top tax payer?

Microsoft said it believes it has always followed the IRS’s rules and paid the taxes it owes in the US and around the world.

“Microsoft historically has been one of the top US corporate income taxpayers,” the software giant stated. “Since 2004, we have paid over $67 billion in taxes to the US.”

Microsoft said that many large multinationals use cost-sharing because it reflects the global nature of their business.

Redmond also said up to $10 billion in taxes that it has already paid are not reflected in the proposed adjustments made by the IRS.

In February 2018 Microsoft had recorded a quarterly net loss after it had been hit with a very stiff $13.8bn (£11.3bn) one-time charge, due to a new US tax law which had cut the overall corporate rate, and offered a lowered rate for companies repatriating overseas profits to the United States.