

Microsoft owes Denmark $1B in taxes - runesoerensen
http://www.dr.dk/Nyheder/Penge/2013/03/03/03201749.htm

======
flexie
tl;dr Danish:

Microsoft bought the Danish Navision Software (that made accounting software,
now called Dynamics NAV) for roughly 10.8 billion kroner in 2002. Shortly
thereafter, Microsoft sold the rights to the software to Microsoft's Irish
subsidiary at a price which the Danish tax authorities think is too low. The
Danish tax authorities now claims taxes amounting to 5.8 billion kroner from
Microsoft based on the price they think would have been right.

It's a classical transfer pricing case.

~~~
bfwi
The article also states that the irish subsidiary is owned by companies in
Bermuda and British virgin islands, which is where the profits go.

Is it easy for Microsoft to get this money back into the US? And how?

~~~
vellum
They could wait around for a tax-repatriation holiday. There was one in 2004
that brought in about $312 billion. Companies paid 5% tax, instead of 35%, on
all foreign revenue brought back to the states.

The theory was that companies would use that money to create jobs, but instead
they bought back a lot of stock. So it's unlikely that there will be another
one in the near future, unless the political winds change.

[http://online.wsj.com/article/SB1000142405270230333990457640...](http://online.wsj.com/article/SB10001424052702303339904576404183763158882.html)

~~~
jacquesm
What they should do instead of a holiday is simply seize assets statesside
with rouhgly the same bookvalue until the money was brought in and taxed in
the normal way.

That would close this loophole pdq. All this pussyfooting around just
underscores that private individuals are on the hook but as a company you can
do just about anything.

I don't like taxes, I disagree with plenty of them, I disagree with how they
are spent. But I still pay my taxes and the fact that I pay more tax on my
income (which is a very small fraction of their turn-over) than some well
known multi-nationals has me seriously ticked off.

~~~
gadders
Nah, what should happen is that governments lower their extortionate tax rates
so that these avoidance measures aren't neccessary.

<http://en.wikipedia.org/wiki/Laffer_curve>

~~~
wavefunction
The Laffer curve has never been shown to be true, and in fact has always been
shown to be false in the real world.

~~~
gadders
It's self-evidently true as a concept, even if the exact shape of the curve
and the values aren't known.

~~~
jeltz
Since we have no clue about the shape of the curve apart from the two extremes
it is a quite useless tool.

EDIT: According to the Wikipedia page some studies indicate that the maximum
for the laffer curve in Sweden was about 70% tax.

~~~
twoodfin
That's a believable number. But I also imagine that the curve flattens
considerably before topping out: Sweden probably wouldn't get a lot of
additional revenue out of that last 5-10% in tax rates. If you were picking
the "right" level of taxation, you'd presumably want it to set it somewhere
near the point where the economic cost of the taxes was equal to the benefits
of the government's use of the revenue, and not at the point of maximum
revenue.

A 70% marginal rate is not outrageously far from where the top bracket in
California will be if Washington decides the best Social Security reform
includes lifting the payroll tax cap. Today's effective top marginal rate in
CA is ~52% in Fed+State income taxes and another 3.8% for the high-earner
Medicare tax. If SS goes uncapped, adding another 12.4%, your $1M earner is
hitting 68.2%. I'm dispensing with the accounting fantasy that the "employer-
paid" portion of the tax isn't actually a tax on the worker.

------
pessimism
I decided to translate the entire article to English from Danish, since this
is too important to have people learn about it through friggin’ Google
Translate:

<https://gist.github.com/ndarville/5081765>.

The only thing that really tripped me up was the corporate terminology between
affiliates, companies, corporations, subsidiaries, parent companies, shell
companies, etc., but I found the wording in the article to use the terms
interchangeably as well.

I haven’t proofed it yet, so consider it a rough draft.

Feel free to post comments in the Gist about anything that comes to mind.

~~~
belorn
> I decided to translate the entire article to Danish

You meant, to English from Danish.

Thanks for translation.

~~~
pessimism
That’s what I get for not proofing my comment. Cheers.

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anigbrowl
As an Irish person I find the widespread use of the Irish tax code for the
purpose of tax avoidance by multinationals deeply embarrassing. This has made
the country something of a pariah among EU tax authorities without conferring
any discernible benefit to the Irish economy.

<http://en.wikipedia.org/wiki/Double_Irish_arrangement>

~~~
raverbashing
You make it sound it's not deliberate

Why be embarrassed? It's competition in the big scale for the lowest tax rate.
Ireland is getting taxes

Also, big taxes hurt the small guy the most.

In the meanwhile, Google, Facebook and others are building offices in Ireland
and hiring people!

~~~
Kurtz79
While they could do so also in the rest of the European countries if there was
an homogeneous tax code among the member states.

This way they make millions from countries like Spain, Italy, Germany etc, and
give nothing back.

Mind, the fault lies in how the EU is organized, it makes perfect economic
sense for the companies.

------
amirmc
Anyone interested in learning more about how tax avoidance and havens work as
well as large company 'best-practices' might be interested in reading Treasure
Islands by Nicholas Shaxson.

Book site: <http://treasureislands.org>

Amazon: [http://www.amazon.co.uk/Treasure-Islands-Havens-Stole-
World/...](http://www.amazon.co.uk/Treasure-Islands-Havens-Stole-
World/dp/0099541726/ref=sr_1_1?s=books&ie=UTF8&qid=1362393762&sr=1-1)

Disclaimer: There's a referral code in the Amazon link for my college's
library

~~~
kmfrk
Would you happen to know what the difference is between the UK and US version?
I assume it's not how they spell "color".

~~~
amirmc
I think it's only language (color vs colour) and the book cover. I can imagine
the UK version of the book cover would not have gone down well with the US
audience (and vice versa).

The content is likely identical otherwise.

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runesoerensen
Google translation:
[http://translate.google.com/translate?hl=en&sl=da&tl...](http://translate.google.com/translate?hl=en&sl=da&tl=en&u=http%3A%2F%2Fwww.dr.dk%2FNyheder%2FPenge%2F2013%2F03%2F03%2F03201749.htm)

~~~
ars
Could someone do a human translation? This is enough to get the general idea,
but not the details.

~~~
mborch
There isn't much more to it. As said in another comment, it's a "classical
transfer pricing case".

Google Translate doesn't do a very good job though:

> Neither Honey, Microsoft or the IRS IRS wants to comment on the pending tax
> to DR2.

"Honey" here would be the Danish tax authority, SKAT, which means tax, but
also treasure, and is often used similarly to the English "honey".

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lawnchair_larry
I think they owe WA a few billion too. www.microsofttaxdodge.com

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aoetr
Taxation is theft.

Especially given that surely Microsoft hasn't consumed anything even remotely
close to 1 billion in Danish goverment services.

Hopefully Microsoft will be able to resist this armed robbery attempt.

Otherwise, they could simply use half that amount, $500 million, to purchase
missiles and drone planes to defend themselves and counterattack (they can buy
500-1000 tomahawk cruise missiles or 10-20 MQ-9 Reaper drones with that
amount).

~~~
kaoD
Taxation is not theft. You're free to leave, but as long as you stay in _our_
territory, you'll have to stick to our community rules, and that includes
taxation.

There's a social contract which you implicitly sign. Take it or leave it, but
stop trying to impose your ideals upon society.

It's funny how liberals can't stop ranting about impositions but fail to
realize they're denying society the right to assemble as a state.

~~~
pc86
You do realize that "Taxation is theft" is about the _least_ liberal thing a
person could say, right?

~~~
kaoD
<http://en.wikipedia.org/wiki/Economic_liberalism>

"Economic liberalism contrasts with ideologies like social liberalism and
social democracy as well as economic orders such as socialism, market
socialism, welfare capitalism, mercantilism and state capitalism [...]
_opposes government intervention_ on the grounds that the state often serves
dominant business interests, distorting the market to their favor and thus
leading to inefficient outcomes"

Et cetĕra.

See also:

\- <http://en.wikipedia.org/wiki/Classical_liberalism>

\- <http://en.wikipedia.org/wiki/Laissez-faire>

~~~
pc86
And prior to FDR the Democratic party was the party of small government.

I'm referring the United States in the present day, where (generally speaking)
the word liberal refers to Democrats more often than Republicans, and the idea
that taxation is theft is an order of magnitude more closely associated with
the latter than the former.

Classical liberalism : The word "liberal" in common discourse :: Classical
literature : Harry Potter

~~~
kaoD
Unfortunately the internet is not USA. I'm sorry for the confusion that my
choice of words might have caused you.

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Nux
They should also look at Shitbucks, amazon and so on. The UK is pretty pissed
at them, too. I hope there's going to be some law to make them pay tax in the
same country where they get the revenue.

