Microsoft, the largest software company in the United States, is saving trillions of won in taxes by concentrating profits in low-tax countries such as Ireland, an analysis found. Although U.S. tax authorities imposed back taxes worth 44 trillion won three years ago, Microsoft still actively uses tax havens, the investigation showed.
The New York Times reported Tuesday that Microsoft generated about 40% of its pretax profit in Ireland, where just 3% of its global workforce is based, after analyzing country-by-country financial reports the company recently submitted under new European Union guidelines. Excluding Ireland, Microsoft's pretax profit across all of Europe amounted to less than 2%. In Germany, Europe's largest economy and the world's third-largest by gross domestic product (GDP) after the United States and China, the share of earnings barely exceeded 0.5%.
Microsoft's profit margins by country also varied widely. The margin from dividing pretax profit by revenue was 24% in Ireland and reached 142% in Luxembourg. By contrast, margins in Germany, France and Italy remained in the single digits.
The differences are attributed to tax rates. Tax rates in major European markets including Germany are 25% or higher, but the rate Microsoft is subject to in Ireland is only slightly more than 14%. In Luxembourg, the rate is just 3%.
The U.S. Internal Revenue Service (IRS) also viewed Microsoft's method of shifting profits as problematic and billed the company in September 2023 for about $29 billion (about 44 trillion won) in unpaid taxes over the decade from 2004 to 2013. It is the largest corporate tax audit case in U.S. history.
Microsoft is pushing back strongly, saying it complied with all IRS regulations and tax laws and paid its taxes fairly. The case remains in legal dispute. Jeff Bullwinkel, Microsoft's vice president and deputy general counsel for EMEA (Europe, Middle East and Africa), explained, "It is difficult to properly grasp the full picture from the numbers in the table alone." He added, "The low taxes paid in France are because of a refund of overpaid taxes from the previous year, and figures related to other regions may look somewhat unusual depending on local accounting rules or fiscal years."
