Microsoft owes the Danish treasury 5.8 billion kroner, or about $1 billion U.S., in unpaid taxes relating to its purchase of financial software vendor Navision in 2002, says the Denmark treasury.
Most tech companies avoid taxes by leaving foreign income overseas or by routing it through Irish or other low-taxation districts, and that’s happening in this case as well. But this case is not primarily, or at least initially about earnings. Rather, this is about Microsoft’s acquisition and transfer of the fundamental assets of Navision to low-corporate-tax regions.
VentureBeat is seeking a comment from Microsoft.
Microsoft bought the company in 2002 for $1.5 billion. So far, all well and good.
The tricky part, according to Denmark, is that Microsoft then transferred its rights in what used to be Navision — the money-making assets — to an Irish subsidiary. And Denmark says that was done at a vastly unfair market value, which is illegal according to taxation rules, says local press agency Nyheder.
On top of this, revenues from the software that former Navision and current Microsoft Business Solutions sells is on the order of a billion dollars a year. (It’s worth noting that Microsoft’s business software unit consists of more than just a renamed Navision.) That revenue has been routed through Ireland via a Microsoft subsidiary which is in turned owned by companies in Bermuda and the British Virgin Islands, according to Nyheder.
All three of those countries are well-known low-corporate income tax regions.
Governments in Europe and the U.S. are increasingly aware of the complex and obscure ways that international corporations, often U.S.-based, are using to avoid paying tax. This is just one of the first cases in which a European government is attempting to claim and obtain that lost tax.