Danish government slaps $1 billion tax bill on Microsoft

This could end up being the largest tax case in Denmark’s history. The whole deal revolves around actions that Microsoft took when it purchased the accountancy software firm Navision in 2002.

Those actions, on the face of it, wove a rather complex web through transactions, technically legal, that allowed Microsoft to pay little-to-no taxes on about $11 billion in revenue. If the process is followed correctly, there are ways to get around Denmark’s high taxes. However, the Danish authorities believe Microsoft did some things procedurally wrong and further believe that their investigation reveals such wrongdoing. The result is the Danes sent Microsoft a 5.6 billion Danish kroner ($980 million) tax bill to Steve Ballmer.

After buying Navision, Microsoft sold the rights to Navision’s software code to an Irish subsidiary. That Irish subsidiary is owned through holding companies in the Virgin Islands and Bermuda. That enabled Microsoft to funnel revenues out of Denmark without paying taxes. However, the Danes believe that the sale to the Irish company was below market value, and so the bill represents lost tax revenues plus interest.

There has not been any official statement by Microsoft, but word has it that the company disputes Denmark’s timeline of events. When such transactions are made, it is common for third-party companies to be involved to assess fair market value for “intangible” technology like software code.

Whether or not Microsoft will pay up for fight the bill remains to be seen.

source: The Register