Microsoft will appeal an IRS ruling that says the software maker owes at least $28.9 billion in taxes over the way it allocated revenue and expenses among subsidiaries around the world from 2004 to 2013.
The company said in a regulatory filing Wednesday that it disagreed with the “notice of proposed adjustments” to its federal tax filings and would appeal the decision.
At issue is a 2012 IRS audit of transfer pricing, a way for companies to shift profits to tax havens and avoid the U.S. corporate tax rate. At the time, Microsoft had moved billions of dollars in profits to jurisdictions such as Puerto Rico, a U.S. territory that imposes a much lower corporate tax rate.
Microsoft Vice President Daniel Goff said in a blog post that the company has changed its corporate structure and practices since the years covered by the audit, so the questions raised by the IRS are not related to its current revenue records. The method doesn’t matter.
Microsoft has been working with the IRS for nearly a decade to resolve questions about how the company allocates revenue and expenses for tax purposes, Goff wrote. The Redmond, Wash.-based company said the proposed $28.9 billion in additional tax bill does not include taxes paid under the 2017 Tax Cuts and Jobs Act, which could reduce it by as much as $10 billion.
“We firmly believe that our actions are consistent with IRS rules and regulations and that our position is supported by case law,” Goff said in the post. “We welcome the IRS to conclude its audit phase, which will provide us with a better understanding of the IRS’s opportunity to resolve these issues with the IRS Appeals Division, the independent division of the IRS responsible for resolving tax disputes.”
Microsoft shares were little changed in after-hours trading after closing at $332.42 in New York.
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