Microsoft May Owe Denmark A Billion Dollars
Throughout its known history, corporate America has not been unfamiliar with the concept of companies seeking to enhance their profits by saving on high taxes. The three giants of American IT – Google, Yahoo and Microsoft have faced the ire of several competitors and governments in their efforts to place billions of dollars in tax havens or through complex, layered acquisitions. Today, Microsoft finds itself in troubled waters with the taxation authority of Denmark who have levied a charge of over $1 billion on the technology giant in back taxes and fines.
The Burden of Back Taxes
According to industry sources, Microsoft acquired the Danish Enterprise Resource Planning (ERP) software company Navision A/S in mid-2002. The taxation authority of Denmark claims that parts of the company were then sold to a small Microsoft subsidiary in Ireland and the company’s profits funneled through tax havens such as the Bahamas, Bermuda and Switzerland.
Navision has been renamed Dynamics NAV and operates in several countries around the world. Microsoft also competes with another American major Intuit who offers a personal and small business finance product TurboTax 2013 that is regarded as a threat to some parts of Microsoft’s ERP software developed by Dynamics NAV. Denmark’s corporate taxes are fairly high — to the tune of 25%, but the government has been proposing a 3% reduction in order to attract foreign investment. With countries such as Ireland and the Czech Republic offering significantly lower tax rates and inexpensive labor, several U.S. and European corporations have moved operations there, while making profits in high-tax nations. However, Microsoft’s use of Caribbean tax havens and subsidiaries to maximize profits has caused significant turbulence in a fragile software and financial market. Although Microsoft may come through relatively unscathed, any penalties paid may encourage other world governments to step up and challenge the American software majors.