REDMOND, Wash. — The Internal Revenue Service says Microsoft owes the U.S. Treasury $28.9 billion in back taxes, plus penalties and interest, the company revealed Wednesday in a securities filing.
That figure, which Microsoft disputes, stems from a long-running IRS probe into how Microsoft allocated its profits among countries and jurisdictions in the years 2004 to 2013. Critics of that practice, known as transfer pricing, argue that companies frequently use it to minimize their tax burden by reporting lower profits in high-tax countries and higher profits in lower-tax jurisdictions.
Microsoft, which is based in Redmond, Washington, said it followed IRS rules and will appeal the decision within the agency, a process expected to take several years. The company’s shares dropped slightly in aftermarket trading, falling $1.42 to $331.
Daniel Goff, corporate vice president for the worldwide tax and customs department, published a statement that says the process will take "several years."
"We strongly believe we have acted in accordance with IRS rules and regulations and that our position is supported by case law. We welcome the IRS’s conclusion of its audit phase which will provide us with the opportunity to work through these issues at IRS Appeals, a separate division of the IRS charged with resolving tax disputes.
"It is important to note that the IRS Appeals process will take several years to complete, and if we are unable to come to a direct agreement with the IRS, Microsoft will then have an opportunity to contest any unresolved issues through the courts.
"We will continue to work with the IRS and hope to reach a mutual resolution to this issue over the coming years. We will also continue to share updates on significant developments through our public quarterly and annual reports and financial statements, as we have through this entire process. As of September 30, 2023, we believe our allowances for income tax contingencies are adequate."