The big technology companies regularly grab the headlines due to their business practices related to tax avoidance. It’s in their interests to minimize the tax they pay, and they use clever accountants to do so without breaking the law. However, for Microsoft, such practices may be about to bite them in Denmark to the tune of over $1 billion.
Nearly 11 years ago in May 2002, Microsoft acquired the Danish business software vendor Navision for $1.3 billion in a stock and cash deal. Microsoft then sold Navision’s accounting and enterprise resource planning (ERP) software rights to one of its Irish subsidiaries for a bargain basement price rather than a price the market would deem fair. By doing so, Microsoft avoided the high taxes in Denmark.
The problem is, the Danish Treasury took notice of what Microsoft was doing and isn’t happy. They see it as Microsoft transferring assets out of the country without paying tax on the true value of those assets. Now they are asking Microsoft to pay the tax (and 11 years of interest) based on the true value of the assets transferred to Ireland.
The surprise tax bill for Microsoft is thought to be for 5.8 billion kroner, which is just over $1 billion. That’s a nice boost for the Danish Treasury’s coffers, but a huge bill for Microsoft, which totals almost as much as they originally paid to acquire Navision.
Microsoft is understandably trying to negotiate with the treasury in an attempt to get the tax bill down, but even if they succeed, it’s still going to be hundreds of millions.
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