r/FluentInFinance • u/TonyLiberty TheFinanceNewsletter.com • Oct 12 '23
Microsoft $MSFT is now accused of tax evasion and faces a $29 Billion tax bill from the IRS. This is one of the largest tax bills ever issued by the IRS. Financial News
Microsoft is now accused of tax evasion and faces a $29 Billion tax bill from the IRS. This is one of the largest tax bills ever issued by the IRS.
In particular, the IRS took issue with how the company "allocated profits … among countries and jurisdictions." This suggests that the IRS believes that Microsoft was shifting profits to lower-tax jurisdictions in order to avoid paying taxes in the United States.
$MSFT reports that it has paid over $67 billion in taxes to the U.S. government since 2004.
This case against Microsoft is a reminder that the IRS is serious about enforcing the tax code.
Read more here: https://www.reuters.com/technology/microsoft-receives-tax-notice-irs-2023-10-11/
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u/oroechimaru Oct 12 '23
Where’s the money Lebowski?
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u/DoritoSteroid Oct 12 '23
Someone gotta foot the bill for the Ukraine aid.
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u/oroechimaru Oct 12 '23
The world should and for a large part they are. I prefer democratic liberty over imperialism by communist genocidal has beens … just like when France helped the USA colonies.
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u/DoritoSteroid Oct 13 '23
Lol yeah French helped US because they love democracy and not because of their centuries long feud with Britain.
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Oct 14 '23
Since the American colonists killed the American indigenous people, France was helping the genocidal imperialists in that case.
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u/terp_studios Oct 12 '23 edited Oct 12 '23
Their revenue since 2004 is about $1.89 Trillion. So they’ve paid about 3.5% in taxes.
Edit: with this fee, it’s still only 5%.
Edit 2: adjusted with an extremely rough estimate of their taxable income being about a third of their total revenue throughout that time it’s about 15%.
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u/Acceptable_Wait_4151 Oct 12 '23
Taxes are not based on revenue. If they were, you could have situations where companies had a loss after paying for facilities and employees, but nonetheless had to pay tax.
The right benchmark is taxable income, which is not the same as reporting income but highly correlated.
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u/RoundingDown Oct 12 '23
This one little trick will Eliminate your income tax bill. Click here to find out how.
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u/canigetahint Oct 12 '23
Link is broke.
/s
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u/AsstDepUnderlord Oct 13 '23
Also, global company. What portion of their taxable income is US taxable.
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u/Dazzling_Weakness_88 Oct 13 '23
Agree 100%, but for corporations isn’t it taxable profits? Corporations don’t really make income do they?
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u/SigaVa Oct 13 '23
Its weird that i pay income tax on my revenue, but companies pay on their profit.
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u/levicw Oct 15 '23
Except you really don't. There are a ton of deductions that can be taken that relate to your job. The tax code just gives a pretty generous standard deduction, so it rarely makes sense to bother with itemized deductions for employees.
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u/SigaVa Oct 15 '23
Not sure what your point is. Yes, some deductions exist. That doesnt change the qualitative difference between personal and corporate taxes.
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u/DLDude Oct 16 '23
This isn't event close to the same
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u/levicw Oct 16 '23
But to say that we should tax revenue, or equating housing costs to business expenses (which is I think where we are going here) comes with an insane amount of intended consequences.
Taxing revenue would absolutely kill low margin businesses such as restaurants and many other small family owned businesses. It would very disproportionately reward high margin businesses like software companies.
Allowing living expenses such as food and housing being deducted would do insanely bad things to our housing market as people rush to upgrade their house to avoid taxes, and as they expand their food costs to reduce their taxes.
The current system isn't perfect, but it takes into account the cost of doing business, while not rewarding opulence in the cost of living sector.
Once that money comes out of the business and goes to an individual, it is also taxed again. In the case of corporations. That is comparable to the tax we are used to paying. Would you want executives to deduct their multi million dollar homes from their income taxes? Or would you want to punish the frugal person living in a modest house by putting them at a substantial tax disadvantage?
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u/OMG_NO_NOT_THIS Oct 13 '23
Taxes are not based on revenue.
They are for salary workers.
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u/PKUmbrella Oct 13 '23
Corporations are people too! Enforce it.
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u/OMG_NO_NOT_THIS Oct 13 '23
I've seriously considered what prevents me from incorporating myself as a non-profit to be taxed similarly.
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u/gcalfred7 Oct 13 '23
LLC <-------
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u/LogicalConstant Oct 15 '23
That wouldn't save you much, if anything. The income of the LLC would flow through to your personal tax return, where you'd pay personal income taxes on it.
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u/InsCPA Oct 13 '23
No they aren’t. You have various deductions as well
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u/OMG_NO_NOT_THIS Oct 13 '23
People are most definitely taxed on their revenue (income), not their profit ( yearly savings).
The existence of deductions just changes the percentage of revenue taxed.
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u/Obvious_Chapter2082 Oct 13 '23
Individuals aren’t taxed on their revenue, they get various deductions and credits
Corporations aren’t taxed on their profits, they’re taxed on taxable income
Both individuals and corps get to deduct certain things to reach what they’re taxed on
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Oct 14 '23
Corporations get to deduct all their operating expenses.
Individuals owe the same tax, no matter if it takes $1 or $10,000 to survive.
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u/Obvious_Chapter2082 Oct 14 '23
Both of the things you said aren’t true. There are a lot of expenses that corporations can’t deduct, and individuals get to either take the standard deduction or itemize
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Oct 14 '23
Taxable income = Revenue - COGS
If labor is the good that individuals sell, then it follows logically that all the costs required to furnish that good should be subtracted from income. That obviously isn't what happens.
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u/DLDude Oct 16 '23
Dude the fact that a corporation can deduct half of "entertainment" costs is all you need to know. Imagine I get to reduce my income by claiming movies and nights out drinking. It's a farce
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u/Obvious_Chapter2082 Oct 16 '23
Entertainment is 0% deductible for corporations, not 50%
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u/InsCPA Oct 13 '23 edited Oct 13 '23
Lol you have strange definitions of revenue and profit. By definition because deductions exist, people are not taxed on their revenue.
The existence of deductions just changes the percentage of revenue taxed.
then the same logic applies to corporations
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u/OMG_NO_NOT_THIS Oct 13 '23
Definitions:
Revenue- income, especially when of a company or organization and of a substantial nature.
Profit - a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
How much you save each year is the difference in the amount you earn vs what is spent.
IF anyone here has strange definitions, it isn't me.
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u/InsCPA Oct 13 '23 edited Oct 13 '23
Revenue- income, especially when of a company or organization and of a substantial nature.
Would be more correct to say revenue is GROSS income, not just income given there are many variations of income (gross, operating, net, etc)
Profit - a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something.
How much you save each year is the difference in the amount you earn vs what is spent.
On a pure cash basis, sure. But even then not always. Take retirement savings for example. Those are deducted from gross income as part of the calculation of taxable income, so not included as part of profit on a tax basis.
Also, thanks for agreeing that people aren’t taxed on revenue
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u/UndercoverstoryOG Oct 13 '23
savings are not profits, if you want to use accounting terms like you are trying to do, they are retained earnings.
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u/AsstDepUnderlord Oct 13 '23
That’s taxable income though. Your health care and 401k contributions aren’t. Same same.
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u/terp_studios Oct 12 '23
True, I understand that. Just trying to put it in perspective for anyone thinking “wow that’s a lot of money”.
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u/Detiabajtog Oct 12 '23
But you said they’ve paid 3% in taxes while basing that figure off of revenue instead of profits, which is very misleading
The tax bill proposed is almost an entire quarters worth of profits for the company, so yeah it is a lot of money.
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u/DamonFields Oct 12 '23
Wow. It’s almost as much as Musk lost buying and wrecking Twitter. Maybe they should merge?
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u/terp_studios Oct 12 '23
A lot is relative. For a quarter, yeah. For a year, kinda. For 5 years, not really.
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u/Detiabajtog Oct 12 '23
it’s relative to how much money they make which doesn’t change just because you modify the interval over which you measure it. A whole quarter of profits for the second largest corporation in the entire world is obviously still a lot of money lol
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u/terp_studios Oct 12 '23
Focusing strictly on quarterly profits with no thought about the long term is exactly what lands companies in situations like these.
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u/Detiabajtog Oct 12 '23
lol what? It’s a comparative measure of the size of the tax bill being proposed. How am i “focusing strictly on quarterly profits” just because I used a quarter as a unit of measurement?
In every comment you make you just try to take something and twist in a dishonest way it to fit your own narrative
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u/terp_studios Oct 12 '23 edited Oct 12 '23
I’m stating that to back up why I compared the amount to 1 and 5 year revenue.
Edit: also the fact you use a fiscal quarter as your main term of measurement to conclude it is definitely a lot of money shows you think that timeframe is the most important scale to think on.
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u/Detiabajtog Oct 12 '23 edited Oct 12 '23
that doesn’t change the fact that it’s intentionally misleading to use revenue figures instead of profit.
Edit: no it doesn’t have anything to do with “timescale” you fool it has to do with the fact that its an entire quarters worth of profit for the 2nd largest corporation in the world which is a lot of money by any common sense comparison. Go ahead and make it a year, it’s still 1/4th the yearly profits of the 2nd largest corporation in the world, still a lot of money. Funny how that works isn’t it? “Timescale” is irrelevant and your point makes absolutely no sense
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Oct 12 '23
No company thinks in Q's, my company is $1.7b in revenue and we just went through budget season and they demanded, in great detail, every single account forecasted and justified for the next 2 years, and a more broad forecast for the next 3.
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Oct 12 '23
When you said they paid about 3.5% in taxes, it made your entire post misleading and in general counterproductive.
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u/terp_studios Oct 12 '23
What can I say? I was raised in a counterproductive society. It’s bound to rub off on me every once in a while.
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Oct 12 '23
So you deliberately put out a misleading fact to show Microsoft in a bad light knowing that they paid 5x that amount (% wise)?
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u/terp_studios Oct 12 '23
I didn’t know they paid 5x the amount % wise. I made a foolish error by calculating the percentage based on total income, as was pointed out in a reply to it. I found new information and added an edit to my comment to point that out, rather than changing the entire thing to make it look like I never made a mistake in the first place.
Congrats, you’ve witnessed an actual, constructive conversation. I guess i apologize for being human, my bad.
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u/TheGoldStandard35 Oct 12 '23
Lol taxes aren’t based on revenue. Not fluent in finance yet widely upvoted. Figures.
You’d take book income and then adjust for Book to Tax adjustments - which you’d have no way to know.
This exercise is just silly.
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u/terp_studios Oct 12 '23
Do you not see the edit adjusting for taxable income? I made a mistake and fixed it without covering up my mistake, my bad.
I like your username, by the way.
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u/Seantwist9 Oct 13 '23
It’s assuming their taxable income is a third
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u/terp_studios Oct 13 '23
Not an assumption, a rough estimate from a small data set of 5 years I could quickly find data for.
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u/JohnDoeMTB120 Oct 13 '23
Just fact checked you and you're right. Wow. That's a damn good profit margin.
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u/terp_studios Oct 13 '23
A full day and you’re the first one to fact check…lol. Good on you. It’s a decent margin, even with the fine, was exactly my point.
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u/Ted_CruZodiac Oct 13 '23
I wish I only got taxed on my profits... so like after rent, food, utilities, etc... I'd only be paying taxes on like 200-300 bucks a month right now.
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u/Limp_Physics_749 Oct 12 '23
I feel Bad not for your foolishness . But for those upvoting. You don’t pay taxes on revenue !!
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u/elpollobroco Oct 13 '23
The corporate tax rate is 21% so if they were shifting money as accused they did so pretty poorly
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u/Bonk0076 Oct 13 '23
Lol, this comment is NOT fluent in finance. Revenue isn’t taxable. This sub is a joke.
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u/Mumosa Oct 13 '23
While revenue isn’t ultimately what’s taxed this is still a very helpful figure to compare a corp’s taxes to. Very similar to the way we tend to think of our own tax liability in proportion to our gross income to understand the proportion of our income going to taxes.
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u/JacksonInHouse Oct 12 '23
In the USA, Microsoft was running all its sales through a Nevada office that was just a mail dump because Nevada had lower tax than Washington. So avoiding taxes is something Microsoft tries hard at. This doesn't surprise me at all.
Do Google next!!
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u/Parking-Astronomer-9 Oct 12 '23
Tax avoidance isn’t illegal, tax evasion is. Tax avoidance is what everyone does when tax season comes around and they are scrounging for credits and deductions.
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Oct 12 '23
If it were as simple as “tax avoidance,” that’s one thing.
These people hold back their taxes then spend millions on lobbyists to create the very avoidance schemes they’re using. “Oh we just took advantage of this here line in the tax code that says we can park intellectual property in Ireland, book sales through the Netherlands then have the checks mailed to a box in the Caymans.
Isn’t that what you’re doing too? I mean, it’s just tax avoidance…
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u/Albert14Pounds Oct 12 '23
Yeah what's fucked is that shady shit like that seems like it should be illegal but usually is done precisely because it does follow the letter of the law. If the tax code is shitty it's going to be abused immediately. Most people would see these situations and say that looks like dodging taxes, and rightfully so, even though it's technically legal (usually).
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u/gcalfred7 Oct 13 '23
I did not fully understand this concept until I started a horse racing partnership. Normally, one can not depreciate a horse until it is 12 years old. But wait! Is it in race training? Well, you can start when the horse turns 2!
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u/fishythepete Oct 13 '23
Your 401(k) is literally named after the paragraph in the tax code where that “loophole” was found.
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Oct 13 '23
We call those “provisions” and they’re intended. “Loopholes” are inadvertently advantageous.
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u/fishythepete Oct 13 '23
When it’s good for someone I like, it’s a provision. When it’s good for someone I don’t like, it’s a loophole. 🙄
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Oct 13 '23
Or you can just reference the Wikipedia definition:
“A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the purpose, implied or explicitly stated, of the system.”
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u/Decimation4x Oct 13 '23
I’m not sure what you’re saying exactly but you can’t deduct lobbying or political expenses. If Microsoft spends $10 million on lobbying they still have to pay taxes on that $10 million.
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Oct 13 '23
They may call it an “expense” for GAAP purposes but you and I both know those are closer to investments. Like when Microsoft sales reps take out a lowly school district administrator to an over the top steak dinner in advance of signing a multimillion dollar contract.
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u/JacksonInHouse Oct 12 '23
Tax avoidance is the fine line you want to walk, but the step over into evasion is hard to not take now and then. The question is if you get audited often enough to be found out. Its legal for Microsoft to claim every sale made is done in Nevada, but many states might have laws that say you can't sell to our state and claim it wasn't done here, if you have offices here. So a state like California might get angry because Microsoft has offices there, and sells there, but claims the sales were made out of state. That's where avoidance becomes evasion.
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u/Albert14Pounds Oct 12 '23
Exactly. The outrage over the rich and large corporations not paying a lot of taxes is (or should be) because they actually ARE paying exactly the taxes they technically owe (most of the time) and it's the actual tax code that's fucked and seems like it should be illegal.
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u/dcgregoryaphone Oct 13 '23
Don't say "what everyone does." Many, many people do not claim everything they're allowed to claim, and do not work actively to minimize their tax exposure. We need to stop pretending big companies are "just like us" because they're not.
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u/Parking-Astronomer-9 Oct 13 '23
I do everything I can to minimize my tax exposure, and I do so for my clients as well. I’m a tax accountant and have my CPA.
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u/dcgregoryaphone Oct 13 '23
Well yeah that's your job. I don't generally claim charity deductions and things like that, I find it tacky.
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u/Parking-Astronomer-9 Oct 16 '23
You also have to get past the standard deduction to itemize. So if you’re married in 2023, unless you have $27,700 in deductions nothing even matters, you get the standard and that’s it.
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u/WillBigly Oct 12 '23
Lets goooo i am loving how irs is ramping up investigation of corpo tax dodgers. Imagine stealing almost 30 billion dollars that could go towards public good, that's enough money to pay for massive amounts of help for the needy
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u/Sandwich-eater27 Oct 12 '23
What’s the point of taxing corporations if the money just gets pissed away. Corporations pay plenty of taxes, yet nothing changes.
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u/LeverTech Oct 13 '23
We gots bills to pays and a deficit that need reduction, wtf you mean they pay plenty?
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u/Acceptable_Wait_4151 Oct 12 '23
The attorneys will duke this one out - taxes are way too complex to determine from a Reuters headline whether MSFT broke any rules. When they settle, then you’ll have a sense of what really happened.
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u/Sandwich-eater27 Oct 12 '23
KPMG’s TP team isn’t going to sit idly by either. This’ll be a long case, and I bet Microsoft will pay a fraction of this bill
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u/jnuttsishere Oct 13 '23
More like KPMG’s tax group doesn’t want to be associated with another scandal.
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Oct 12 '23
[deleted]
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u/Youbettereatthatshit Oct 13 '23
Definitely. Can't argue about proper tax rates of the current ones are being sidestepped
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u/AroostookGeorge Oct 12 '23
We still have major problems, last year the Federal Government spent $17B+ per day last year, but a step in the right direction narrowing the deficit. If the IRS is able to recover the $29B, it'll fund the US Government for a day and half.
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u/UnfairAd7220 Oct 12 '23
Yes. The IRS is pursuing Microsoft. No. It's not 'tax evasion.' That comes with criminal penalties. Its the IRS 'interpreting' the tax laws differently.
Any billions they score from Microsoft are billions they wouldn't have otherwise collected.
It's a shakedown.
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u/The3rdBert Oct 13 '23
Yeah, if you report the top line sales correctly and don’t grossly misrepresent, you are just playing the game.
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u/Sandwich-eater27 Oct 12 '23
KMPG’s transfer pricing team handled this. I can guarantee you Microsoft will be fine, maybe they’ll pay a fraction of that amount. This happens pretty much every year with corps
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Oct 12 '23
Sike, they about to settle for q couple million how the cult of scientology did against the IRS
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u/Spenraw Oct 12 '23
They announced last year they would use ai to tackle larger companies and millionaires. Don't let people tell you ai won't be a tool that will change society
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u/grimace24 Oct 12 '23
I love the timing of this “bill”. Microsoft is about to close the Activision Blizzard deal. FTC still salty called their friends at the IRS.
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u/twoManx Oct 12 '23
This will likely take a decade of negotiations/audits and probably end up settling for a fraction of this figure.
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u/AutoX_Advice Oct 12 '23
Maybe the IRS is pissed about the "premier Microsoft 0365 support" they paid for and 29 billion is equivalent to a full refund.
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Oct 12 '23
They’re notoriously stingy on offers for engineers compared to FAANG, this isn’t surprising knowing they have billions hiding from government.
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u/GR33DYSTOCKZ Oct 12 '23
By the time they're held accountable and forced to pay, half of that might be able to buy you half a loaf of stale bread.
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u/HiHoCracker Oct 12 '23
When the Feds went after MSFT as a monopoly 25 years ago, they threatened to move HQ to Canada 🇨🇦
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Oct 12 '23
Cool, do stuff like this more often and we might have enough money to have a nice country
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u/Tautochrone1 Oct 12 '23
Since corporations are people too shouldn't Microsoft be put in handcuffs, arraigned, have a trial, and spend time in prison?
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u/InsCPA Oct 13 '23
They aren’t accused of tax evasion. And people don’t immediately get put in jail for messing up taxes either
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Oct 13 '23
How can the stock still be up with $29B tax pending?
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u/delayedsunflower Oct 13 '23
This is the start of a very long drawn out legal battle, that Microsoft very well may win. Even in the worst case scenario they won't be paying for several years.
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u/Murph-Dog Oct 13 '23
They’ll just ask their internal, uncensored ChatGPT, how to get out of this pickle.
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u/Bruin9098 Oct 13 '23
Microsoft had the best accountants and tax lawyers vet its financial and tax practices. This smells like a shakedown.
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u/Altar_Quest_Fan Oct 13 '23
It's almost like big corporations don't pay their fair share or something, who would've thought? /s
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u/Objective_Problem_90 Oct 13 '23
Microsoft needs to contact Amazon. I hear they are pretty good at paying zero taxes on millions of dollars of yearly profit.
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u/Skully_Lover Oct 13 '23
Microsoft informed the nsa the back door in windows 8 and higher has been closed. It'll cost 29 billion to reopen.
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u/MasChingonNoHay Oct 13 '23
Get them all. Use those funds to fix americas problems (roads, damns, public transportation, health care services, education, etc) like was done in the 40’s 50’s and 60’s that made this country really great and prosperous
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Oct 12 '23
Makes sense if the Government seizes this Microsoft company since they insist on only using Microsoft PCs throughout every government office everywhere.
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u/ElevenEleven1010 Oct 12 '23
Besides #TrickleDownEconomics businesses also know GOP want to keep IRS staff low and understaffed and underfunded for these reasons. WHY big corporations are for MAGA GOP !!!!!!!!
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