Submission + - Satya O'Nadella? Microsoft Defends its $47B Irish Pot of Gold and Low Tax Rates
theodp writes: The NY Times reports on a new required EU country-by-country compliance report released by Microsoft this week, which provided a rare look into how tech giants shift profits out of the countries where they have many employees and significant sales and into low-tax havens that help them cut their tax bills by billions of dollars. Like other big companies, Microsoft uses transactions between subsidiaries to shift profits around to reduce its tax bill. The report revealed a consistent pattern: high returns in low-tax jurisdictions and slim margins in higher-tax ones.
Among the sometimes absurd results, Microsoft said it had generated almost 40% of its pretax income in tax-friendly Ireland, where it employed about 3% of its global work force. In higher-tax Germany, the largest economy in Europe, Microsoft earned barely half of 1% of its global profits, it said. Excluding Ireland, the company said, it generated less than 2% of its worldwide pretax earnings in Europe. For its 2025 fiscal year, Microsoft reported profit margins of 24% in Ireland, where it paid taxes at a rate of just over 14%, and $47+ billion in pretax profit on revenues of $196 billion (the entire population of Ireland is about 7 million). Microsoft employs roughly 6,600 in Ireland. In Luxembourg, Microsoft claimed profit margins of 142% and a tax rate of just 3%. The company said it had $283 million in pretax income and only 34 employees in the tiny country. But in several of Microsoft’s biggest markets — where tax rates exceed 25% — it reported tiny profit margins. In Germany, France and Italy, the company claimed single-digit profit margins, sometimes barely 5%.
The report still gave only a partial picture, because it lumped in the U.S. with other countries. Microsoft said in a blog post accompanying the report that it followed all the laws in every jurisdiction where it operated, and that the reporting standards created some inconsistencies among countries. “Microsoft is committed to a tax structure that reflects where our people work, where we invest, and where functions, assets, and risks occur,” wrote Jeff Bullwinkel, Microsoft’s top lawyer in Europe. Bullwinkel said Microsoft’s capital expenditures in data centers, its corporate work forces and its work through local partners were also key investments in local economies. “Tax is one important measure of contribution, but it is not the only one,” he wrote. The IRS is challenging profit-shifting transactions used by Microsoft, and is seeking back taxes of nearly $29 billion. The company has said it disagrees with the IRS and said in a securities filing that it “will vigorously contest” the proposed tax bills.
Hey, say what you will about former Microsoft CEO Steve Ballmer, but at least he didn't try to blow smoke up the public's butt about why Ireland held such a special place in Microsoft's heart. "Corporate tax is part of the overall advantage of doing business in Ireland," Ballmer told journalists in 2005 while in Dublin on a tour of the company’s Irish operations. "It would be disingenuous to say otherwise."
Among the sometimes absurd results, Microsoft said it had generated almost 40% of its pretax income in tax-friendly Ireland, where it employed about 3% of its global work force. In higher-tax Germany, the largest economy in Europe, Microsoft earned barely half of 1% of its global profits, it said. Excluding Ireland, the company said, it generated less than 2% of its worldwide pretax earnings in Europe. For its 2025 fiscal year, Microsoft reported profit margins of 24% in Ireland, where it paid taxes at a rate of just over 14%, and $47+ billion in pretax profit on revenues of $196 billion (the entire population of Ireland is about 7 million). Microsoft employs roughly 6,600 in Ireland. In Luxembourg, Microsoft claimed profit margins of 142% and a tax rate of just 3%. The company said it had $283 million in pretax income and only 34 employees in the tiny country. But in several of Microsoft’s biggest markets — where tax rates exceed 25% — it reported tiny profit margins. In Germany, France and Italy, the company claimed single-digit profit margins, sometimes barely 5%.
The report still gave only a partial picture, because it lumped in the U.S. with other countries. Microsoft said in a blog post accompanying the report that it followed all the laws in every jurisdiction where it operated, and that the reporting standards created some inconsistencies among countries. “Microsoft is committed to a tax structure that reflects where our people work, where we invest, and where functions, assets, and risks occur,” wrote Jeff Bullwinkel, Microsoft’s top lawyer in Europe. Bullwinkel said Microsoft’s capital expenditures in data centers, its corporate work forces and its work through local partners were also key investments in local economies. “Tax is one important measure of contribution, but it is not the only one,” he wrote. The IRS is challenging profit-shifting transactions used by Microsoft, and is seeking back taxes of nearly $29 billion. The company has said it disagrees with the IRS and said in a securities filing that it “will vigorously contest” the proposed tax bills.
Hey, say what you will about former Microsoft CEO Steve Ballmer, but at least he didn't try to blow smoke up the public's butt about why Ireland held such a special place in Microsoft's heart. "Corporate tax is part of the overall advantage of doing business in Ireland," Ballmer told journalists in 2005 while in Dublin on a tour of the company’s Irish operations. "It would be disingenuous to say otherwise."
