Microsoft will appeal a decision by the US Internal Revenue Service that the software maker owes at least $28.9 billion in back taxes related to how it allocated income and expenses among its global subsidiaries from 2004 to 2013.
The company said in a regulatory filing on Wednesday that it disagrees with the “notices of proposed adjustments” to its federal tax returns and will appeal the decision.
The dispute centres on a 2012 IRS audit into transfer pricing, a method used by companies to shift profits to tax havens and avoid the US corporate tax rate. At the time, Microsoft had shifted billions of dollars in profits to jurisdictions such as Puerto Rico, a US territory with a much lower corporate tax rate.
The company has changed its corporate structure and practices since the years covered by the audit, so the issues raised by the IRS aren’t relevant to the way income is currently recorded, said Daniel Goff, a Microsoft vice president, in a blog post.
Goff wrote that Microsoft has been working with the IRS for nearly a decade to resolve questions about how the company allocates income and expenses for tax purposes. The Redmond, Washington-based company said the proposed additional tax bill of $28.9 billion doesn’t include taxes paid under the Tax Cuts and Jobs Act of 2017, which could reduce the total by as much as $10 billion.
“We strongly believe that we acted in accordance with IRS rules and regulations and that our position is supported by case law,” Goff said in the post. “We welcome the conclusion of the IRS audit phase, which will allow us to resolve these issues before IRS Appeals, a separate division of the IRS charged with resolving tax disputes.”
Microsoft shares were little changed in extended trading after closing at $332.42 in New York.
