Friday, July 29, 2011

Microsoft shirks tax, via tax havens

From Lynnley Browning, who has recently moved from the New York Times to Reuters:
If you want to know why tax from surging corporate profits isn't making much of a dent in the United States' crippling budget deficit, a glance at Microsoft Corp's recent results provides some clues.

"Microsoft reported only $445 million in taxes in the U.S. and other [sic] foreign countries, just 7 percent of its $6.32 billion in pre-tax profit.
And look at how Microsoft's effective tax rate is tumbling:
"Microsoft's effective worldwide tax rate fell to 17.5 percent in the last fiscal year, down from 25 percent the previous year and 31 percent in the year to June 30, 2006. . . . Microsoft tax rate is still at the low end when compared with other large technology companies."
That chimes with a similar investigation by Marty Sullivan into Microsoft's tax affairs last year.

There are always a range of reasons, some more dubious than others, why companies have effective tax rates that are lower than the headline rate, but Reuters is clear about the big one:
"Microsoft is straightforward about the core reason for its lower tax bill: It is increasingly channeling earnings from sales to customers throughout the world through the low-tax havens of Ireland, Puerto Rico and Singapore."
The story quotes TJN senior adviser Richard Murphy, who calls Microsoft "a giant tax planning machine." Murphy says elsewhere:
Stand Gates alongside Bono, I say.
There is also indirect support for Country by Country reporting, a key TJN ask, from an unlikely quarter: James Hines of the University of Michigan, a well-known supporter of tax havens.
"U.S. companies do not have to break out earnings in foreign subsidiaries, making it hard to determine from financial filings how much tax they are saving through each jurisdiction. "We're in the land of guesswork here," said Professor James Hines Jr., a tax scholar at the University of Michigan."
Quite so. Which is why country by country reporting, pioneered by Murphy, is so important.

All of which is why Senator Carl Levin's recent Stop Tax Haven Abuse Act is so exciting, with its requirement for Country by Country reporting not just for industries in the extractives sector, as previous legislative initiatives have required - but in all sectors.

If that legislation came to pass, the effects on boosting transparency would be incalculable.

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