NC Budget and Tax Center

Microsoft exploits tax loopholes to dodge paying income taxes

Microsoft, the software titan familiar to most Americans, has benefited handsomely from using loopholes in the federal tax code to avoid paying its fair share of corporate income taxes. The corporation has avoided paying $4.5 billion in U.S. income taxes in recent years, according to evidence presented by the Senate Permanent Subcommittee on Investigations (PSI).

To avoid paying income taxes, Microsoft “sold” the right to market its products in the Americas to an offshore subsidiary, which then “licensed” back to the parent company the right to sell its products in the United States. The effect was that in 2011, almost half of the value of Microsoft’s U.S. sales was channeled offshore, and through this “transfer-pricing” shell game the company avoided $4.5 billion in U.S. income taxes over three years.

Senator Carl Levin’s Stop Tax Haven Abuse Act (S. 1533) bill would close two tax loopholes that corporations use to shuffle their intangible property, like licenses and patents, to offshore subsidiaries and dodge paying the taxes they owe. Closing these two loopholes would raise $23 billion in revenue over 10 years. Eliminating such corporate tax loopholes represents a positive step forward in ensuring that profitable corporations such as Microsoft, among others, pay their fair share of taxes.

6 Comments

  1. LayintheSmakDown

    October 3, 2013 at 6:26 pm

    It is unfortunate that we have such an onerous tax structure that it is cheaper for these companies to go through such ruminations than it is to pay the tax. Although you would think that a company headed by a progresso poster boy like Bill Gates would actually put his money where his mouth is.

  2. Alan

    October 3, 2013 at 9:31 pm

    LSD,

    For someone who spouts repeatedly about their so-called financial expertise, this comment (again) doesn’t make an ounce of sense. Typical reflexive right-wing nonsense.

  3. GOP Rules

    October 4, 2013 at 4:20 pm

    Alan, thanks for you paid comment.

    You seem to miss the point (as usual) LSD makes that the high tax environment here in the US incents companies to try offshore schemes.

  4. Alan

    October 4, 2013 at 7:09 pm

    I’m sorry, but your comment has no merit whatsoever. The corporate tax rate here has very little to do with driving domestic corporations offshore. If you had any real business experience you would actually know that, rather than repeat the tired mantra of “having the highest corporate tax rate in the developed world”. When all tax deductions & avoidance measures are factored in, US corporations actually have a lower tax burden than many other countries. Granted, ‘on paper’ the US corporate tax rate is the highest amongst OECD member countries, but effective tax rates are substantially lower. According to a recent report issued by the GAO (commissioned by Senators Carl Levin and Tom Coburn), the average US effective tax rate is 12.6%, see link below:

    http://www.gao.gov/assets/660/654957.pdf

    PS. My comments are not paid for by anyone.

  5. Alan

    October 4, 2013 at 10:14 pm

    PPS. It would be interesting if LSD and GOP Rules (assuming they are separate entities), could actualy make the same assertion that they are not affiliated, or paid, by any organization. The track record would certainly indicate otherwise…

  6. Jim Wiseman

    October 5, 2013 at 9:41 am

    This is known as “doing business.”