Microsoft Corporation (MSFT) Slapped With $140 Million Fine for Tax Evasion in China

Microsoft Corporation (NASDAQ:MSFT), is set to pay China an amount of approximately $140 million (840 million yuan) covering back taxes plus interest, and the software company was also hit with a requirement to make additional payments of more than $100 million yuan in future annual taxes. In an email to Reuters, an unnamed spokesman for Microsoft noted that the U.S and Chinese governments inked an agreement back in 2012 concerning bilateral pricing in connection with Microsoft’s China operation, adding further that Microsoft consistently paid  its Chinese taxes as per the terms of the agreement.

A report by Hong-kong based South China Morning Post cited the state news agency Xinhua in Beijing as noting that China is having its first major tax evasion case against a multinational company which it only labeled as “M”. The case, according to the report, highlights the strategies of multinationals in evading tax obligations by leveraging cross border differences in tax rates through funds transfers to various countries. While Xinhua did not name the multinational company involved, it said that it is a leading global company listed among the world’s 500 largest business firms with a wholly owned foreign subsidiary in Beijing since 1995, a description that perfectly fits Microsoft Corporation (NASDAQ:MSFT). The company neither confirmed nor denied that it is the one involved in the tax case.

Microsoft (MSFT)Microsoft Corporation (NASDAQ:MSFT)’s tax headaches in China comes even as it is under investigation by the U.S. Internal Revenue Service over transfer pricing schemes. In its annual report for 2014, the company indicated an overall effective tax rate of 21 percent, which is much lower than the standard 35 percent corporate rate in the U.S.

Prior to the current Chinese tax case, Microsoft Corporation (NASDAQ:MSFT) is already under investigations from China’s antitrust regulators. China, the world’s second largest economy, is particularly known to be a challenging location for businesses. According to the Xinhua report cited by Reuters, Chinese tax authorities have been suspicious of the company for reporting successive losses in 6 years, amounting to more than 2 billion yuan, while its industry peers enjoyed profits. The company agreed to pay the fees imposed by the government, according to the report.

This article has been written by Nonito Guntan.

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