Microsoft (MSFT:US) has been served a notice by the Internal Revenue Service (IRS) to pay up an additional $28.9 billion in taxes. This amount includes interest and penalties for the period spanning 2004 to 2013. The notice is another episode in the ongoing dispute between the tech giant and the IRS where Microsoft’s distribution of profits among different countries and jurisdictions has been questioned.
This is a big amount and it is unlikely Microsoft is going to hand over the money without a fight. The company does plan to contest the IRS demand. It will do so by getting in touch with the IRS but if that doesn’t work, court proceedings cannot be ruled out.
Microsoft does not expect its tax bill to change much over the course of the next 12 months and expects it can easily bring down the owed amount to below $20 billion.
Global tech companies often report higher profits in low-tax countries in an effort to minimize their tax bills. The IRS demand stems from this practice carried out by companies during the period in question. Microsoft accepts that this was a practice of the past but believes it is not relevant anymore today.
The company has been under pressure lately mainly because of the scrutiny of its $68.7 billion acquisition of Activision Blizzard (ATVI:US) as well as a recent settlement of $20 million with the FTC. Only time will tell how much the IRS can squeeze out of the tech giant in the name of past taxes.
Suzan DelBene’s Timely Sale
This development also puts into perspective Suzan DelBene’s selling spree at the end of August this year. She sold $750,000 - $1.5 million worth of MSFT stock in late August, a move that is making much more sense in the context of her position on the Ways and Means Committee. The Ways and Means Committee is responsible for raising revenue for the Federal government, including through corporate income taxes.
Microsoft shares were unfazed by the development and were trading around the $332 mark during trading today.