There's some big news coming out of Microsoft this morning related to the IRS, with Microsoft confirming that the Internal Revenue Service is requesting $28.9 billion (!) in back taxes relating to the period between 2004 and 2013.
Microsoft says it disagrees with the "proposed adjustments" put forward by the IRS, and therefore will embark on an appeals process. The company also mentions that the $28.9 billion figure doesn't take the "taxes paid by Microsoft under the Tax Cuts and Jobs Act" into account, which could decrease the final audit's figure by up to $10 billion.
Here's a bit of what the company has had to say about the IRS tax audit:
"The IRS recently sent us a series of Notices of Proposed Adjustment (NOPAs), sharing with us for the first time detailed information and explanations of their views about the issues in question."
"Microsoft disagrees with these proposed adjustments and will pursue an appeal within the IRS, a process expected to take several years. We believe we have always followed the IRS’ rules and paid the taxes we owe in the U.S. and around the world. Microsoft historically has been one of the top U.S. corporate income taxpayers. Since 2004, we have paid over $67 billion in taxes to the U.S."
What the dispute is about
"The main disagreement is the way Microsoft allocated profits during this time period among countries and jurisdictions. This is commonly referred to as transfer pricing and the IRS has established regulations that allow companies to use a specific arrangement for transfer pricing, called cost-sharing."
"Many large multinationals use cost-sharing because it reflects the global nature of their business. Because our subsidiaries shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations, the subsidiaries were also entitled to the related profits."
Microsoft believes it has "acted in accordance with IRS rules and regulations and that our position is supported by case law", and therefore hopes to "reach a mutual resolution" with the IRS over the coming years.
It sounds like this is going to be dragged out over a very long time, but ultimately $28.9 billion is a big chunk of change (almost 4 times what Microsoft paid for Bethesda a few years ago!), so it's not a matter to be taken lightly. It obviously doesn't affect Xbox directly, but who knows if it could end up having an impact down the line...