

Senate report: Microsoft used loopholes to avoid billions in taxes - jwuggles
http://www.komonews.com/news/local/Senate-report-concludes-Microsoft--170564536.html

======
blantonl
_A new congressional investigation claims Microsoft has been able to avoid
paying $6.5-billion in taxes since 2009 thanks to the complicated tax
structure in the U.S._

The role of a CFO (and his office) is to do exactly what resulted above. Build
a team of accountants, lawyers, and financial analysts that makes sure that
the financial health of the company is strong. "Is this a tax credit we can
take advantage of, do it." "Can we legally execute this transaction and
conserve millions of dollars? do it."

If these items are legal based on federal law and pass Microsoft's board's
scrutiny, then why is this even an issue?

~~~
csense
> why is this even an issue?

Because the Democrats want to press home the message that corporations and
wealth are inherently evil in this election cycle, and the chairman of the
committee quoted in the article is a Democrat, as the article mentions, twice.

An unfortunately large percentage of the US population apparently isn't
capable of formulating the good and simple question in the last sentence of
your post -- a large enough percentage that the story can attract enough
eyeballs to justify its publication.

~~~
Karunamon
>Because the Democrats want to press home the message that corporations and
wealth are inherently evil

Excuse me while I go pick up my eyes that just rolled across the floor. This
isn't even remotely true - there's nothing wrong with wealth or corporations
_in general_ \- but when corporations begin doing evil things in the pursuit
of wealth, big surprise, people are going to complain.

------
varunsrin
Every once in a while, a publication will run something like this about major
companies [1][2]. It seems to be standard practice among large corporations.
As a company, if you are allowed to save large amounts of money by using
existing loopholes (read: things that are within the scope of the law),
wouldn't you be silly not to?

[1][http://www.businessweek.com/magazine/content/10_44/b42010431...](http://www.businessweek.com/magazine/content/10_44/b4201043146825.htm)

[2][http://www.nytimes.com/2012/04/29/business/apples-tax-
strate...](http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-
aims-at-low-tax-states-and-nations.html)

[Disclaimer: I work for Microsoft]

~~~
count
If you work for a public firm and know that the 'loophole' exists, I wonder if
share holders could take action against you if you did NOT utilize it.

~~~
wildmXranat
On the flip-side, how is it that publicly elected officials are not indicted
or held responsible for creating these loopholes after being lobbied and end
up costing their shareholders - the public, some real coin. I think of the
whole thing as a closed loop ecosystem and somebody has to be losing, if a
group of shareholders is gaining.

~~~
001sky
This is actually a valid question. Surprisingly, in business you can argue
your incompetence shields you. The "business judgement rule"[1] says basically
you are allowed to make "mistakes". But you're not allowed to be "negligent",
act bad faith or whatever.

[1] In the USA, viz: <http://en.wikipedia.org/wiki/Business_judgment_rule>

------
csense
The problem is that loopholes are largely monotonic.

Every loophole that exists was originally a political favor to some important
constituency. There are always important constituencies seeking political
favors, or embattled politicians or parties seeking new allies; so there will
always be pressure to create new loopholes.

If a loophole's in danger of going away, its constituency will scream bloody
murder. Republicans who vote to eliminate it will be painted as "raising
taxes;" ever since Bush I promised not to raise taxes, raised taxes anyway,
and then lost the White House, a lot of Republicans have been very afraid of
this political attack. So there will always be pressure to avoid closing
existing loopholes.

So loopholes are monotonic -- they can only increase over time.

The only way we could conceivably get out of this situation is if our tax code
becomes so complex, everyone -- even the beneficiaries of the loopholes -- is
angry and upset at the complexity and costs of paying, and decides to support
throwing the whole thing out and starting fresh. This scenario probably
requires a united government (same party controlling Presidency and both
houses) which is willing to make the issue a priority. It's probably not going
to happen in this year's election, unless a major event occurs between now and
Election Day.

~~~
WildUtah
_The only way we could conceivably get out of this situation is if our tax
code becomes so complex, everyone -- even the beneficiaries of the loopholes
-- is angry and upset at the complexity and costs of paying, and decides to
support throwing the whole thing out and starting fresh. This scenario
probably requires a united government_

The last time it happened in 1986, the House was Democratic and the Ways And
Means Committee was run by famously corrupt but effective old-time Chicago pol
Dan Rostenkowski. The Senate was Republican and liberal West Coast Oregon
Republican Bob Packwood was running the Senate Finance Committee. President
Ronald Reagan and his tax policy chief Donald Regan were more right wing than
the Koch brothers and Michelle Bachmann combined.

Together they pushed through the biggest tax reform in the nation's
history.[0]

There was nothing united about US government in 1986. It's hard to imagine a
political spectrum as disunited and full of genuine differences today.
Nevertheless, Reagan bet his second term policy agenda on tax reform and
Rostenkowski arranged an unprecedented public media campaign and put himself
on television selling the Reagan idea to the people and his own party. The
reform was pushed through with bipartisan support and only oil companies and
employee benefits escaped unscathed. All the other pressure groups had to give
for the national good.

The difference is not a united government. We had united government in 2003-04
and 2009-10 and it didn't do any good. The difference is leadership. This year
we don't have much leadership available in Washington from either party and
the challengers in the coming election seem even less likely to offer any.

So don't get your hopes up.

[0] Showdown At Gucci Gulch by Murray and Birnbaum is the classic book about
the 1986 reform

~~~
encoderer
> President Ronald Reagan and his tax policy chief Donald Regan were more
> right wing than the Koch brothers and Michelle Bachmann combined

I think this is where your memory skews.

By the standards of the time, that is true.

But today? Reagan supported AMNESTY. He supported a tax reform bill that
RAISED some taxes. EITC??? That's a means-tested welfare program to try to
lift working poor above the poverty line.

I grew up a liberal. I still am, but I'll be honest, my idealism is tested by
our tax rate and fiscal ignorance. If you have no kids or mortgage, live in
California and make over 100k -- in other words if you're like most software
engineers in bay area startups -- you pay an _obscene_ tax rate. And I'd even
be OK with that if Sacramento and D.C. were good stewards of our tax dollars.
But, of course, they're not.

Still, I have no choice but vote Democratic. I could vote 3rd party and waste
my vote. But today's breed of hyper-partisan, non-fact-base Republicans just
are not a serious alternative.

~~~
twoodfin
"Yesteryear's Republicans were reasonable. It's just this crop that's a bunch
of know-nothing radical fascist reactionaries" was said in the 1980's as much
as it's said today. It was said in 1994 about Newt Gingrich and Co. just a few
years before they worked with President Clinton to reform welfare and balance
the budget. "This is not your father's Republican party" was a favorite line
of House Minority Leader Dick Gephardt, if I recall correctly.

------
paulsutter
The use of the word "loopholes" indicates that Microsoft is complying with the
law. The word "loopholes" also implies that Microsoft's actions aren't within
the intent of the law, but the article provides no explanation on the intent
of the law. So this article is an unfounded and unbalanced attack on
Microsoft, no more interesting than saying "Microsoft is evil!".

~~~
spauka
I am curious about the senate committee choosing to single our Microsoft and
HP in their attach, when there is ample evidence to suggest that so many other
well known companies are engaging in similar practices. In 5 minutes, I came
up with articles from major papers documenting 3 of the biggest companies in
the US using similar practices...

[http://www.nytimes.com/2012/04/29/business/apples-tax-
strate...](http://www.nytimes.com/2012/04/29/business/apples-tax-strategy-
aims-at-low-tax-states-and-nations.html?pagewanted=all)
[http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-
sho...](http://www.bloomberg.com/news/2010-10-21/google-2-4-rate-shows-
how-60-billion-u-s-revenue-lost-to-tax-loopholes.html)
[http://www.guardian.co.uk/technology/2012/apr/04/amazon-
tax-...](http://www.guardian.co.uk/technology/2012/apr/04/amazon-tax-
loopholes-us)

------
aaronbrethorst
Can we get back to discussing topics of a more technical nature? There are a
million websites for this sort of useless unresolvable back and forth debate,
ranging from Daily Kos to RCP to Human Events, any of which are better suited
to this than HN.

I love a good political debate as much as the next person, and enjoy HN for
the specific reason that I can avoid this sort of bullshit. And yes, I've read
the guidelines and have flagged this.

------
salem
Moving around intellectual property rather than than profits is very very old
practice for tech companies. Why repatriate profits when you can use them for
R&D spending outside the USA, where there may even also be an R&D tax credit!

Moving the intellectual property out of the USA, and then using that to make
US sales from anther country is pretty ballsy though.

------
philip1209
If Microsoft paid taxes unnecessarily, they would be doing a disservice to
their stockholders.

------
michaelcampbell
If only there were a governing body that had some authority to do something
about these loopholes.

------
jacalata
Microsoft should run for president. Isn't this one of the qualifications?

------
lifeisstillgood
Firstly there are some simple issues that most international companies are
very tax "efficient" - paying their alloyed fair share would drive most of the
Fortune 500 into the red this year

I am not saying that's a bad thing but it is a hard thing

Secondly allocation of resources is soluble. - one example would be an
international agreement to pool all taxes and share out to countries in
proportion to employees per country, but in the end companies pay how much we
are willing to let them get away with.

~~~
cdavid
What are you basing your assertion that most fortune 500 would be in the red
on ? Corporate profit (post tax) are at a record high (e.g.
<http://elidourado.com/blog/the-short-run-is-short/>).

~~~
lifeisstillgood
Partly poetic license - my apologies.

The nearest I can find is [http://www.uspirg.org/reports/usp/representation-
without-tax...](http://www.uspirg.org/reports/usp/representation-without-
taxation) citing 18% paid on expected taxes of 35%. Which makes an extra 220
bn - almost double.

Given that the avg net margin is 6.3% (see below) doubling the effective tax
rate would cause significant issues - but I need more data

Plus 1 for calling me out <http://seekingalpha.com/article/428181-debunking-
s-p-500-p>

------
mtgx
How complicated can it really be? If you're making the profit in the country,
then you should pay the taxes on that profit there, not send it to another
branch to avoid paying the taxes. If there isn't a law against doing that,
then there ought to be one.

~~~
dllthomas
Part of the issue, I think, is people finding new and creative ways of
"send[ing] it to another branch" and we're playing whack-a-mole because we
want to ban the behavior rather than the intent.

~~~
dumb_dumb
"ban the behavior rather than the intent"

I think this sums it up quite nicely. The intent, which is encouraged by all
branches and is culturally engrained (I will retrieve citations if requested),
is "reduce your taxes as low as possible".

With the right advisors, corporations can do this very effectively. This
should not be a surprise to anyone. They will pay less, much less. After all,
that's what you encouraged them to do.

If your aim is to collect more taxes, then why encourage those being taxed to
seek to reduce their tax liability as low as possible?

Forgive me if I am missing the obvious. But this to me has never made sense.

~~~
csense
> reduce your taxes as low as possible

It's not something that's "encouraged" or "culturally ingrained." It's simply
a matter of lowering your costs.

~~~
dumb_dumb
If I track down a quote from a famous US Justice from the early 1900's where
he says every American is expected to try to lower their taxes, would that
cause you to reconsider your view?

~~~
philwelch
The "expectation" is merely because that's what any rational, self-interested
person would do. I can't see how it's logically possible to escape that.

~~~
dumb_dumb
That is exactly it. And though I do not have the quote in front of me, I can
tell you this is how the justice who said it approached every issue.

Maybe "encouraged" and "engrained" were not the right words. How about
"endorsed"? I think rational self-interest is a concept that might vary in the
degree to which it is adopted into people's behavior as you move from country
to country. That's only a theory. Certainly, in the US, reducing tax
liability, and doing so vigorously, is believed to be the rational thing to
do.

But if I'm the taxing entity, is it rational for me to endorse the idea of
paying less? That would seem to lead to a reduction in the amount I will
collect as those being taxed adopt and refine their tax reduction strategies.

~~~
philwelch
> But if I'm the taxing entity, is it rational for me to endorse the idea of
> paying less?

It's rational for you to accept the fact that people will work to minimize
their tax liability and construct policy under that assumption.

