LONDON: A report in the Sunday Times detailed how Microsoft shelters itself from heavier corporate tax in Britain by accounting for transactions through its Irish holdings.
Microsoft has avoided paying up to 100 million pounds ($143 million) a year in U.K. taxes by routing sales to British customers through an Irish subsidiary, the London-based Sunday Times reported.
The report is the latest scrutiny of Microsoft’s tax practices, following attention in recent years from government bodies in Australia, China, the European Union and the U.S.
Microsoft’s corporate tax structure is designed to route sales through Ireland, as well as Singapore, Puerto Rico and Bermuda, jurisdictions that have lower tax rates than the countries where most of the company’s customers are located.
That organization, similar to those deployed by many U.S. companies, has enabled Microsoft to avoid paying tens of billions of dollars in taxes to governments worldwide. Governments, particularly in Europe, have been investigating such structures recently, and previous targets include Starbucks and Amazon.com.
The Sunday Times report focused on a Microsoft advance pricing agreement that it said the U.K. tax office approved in 2012. Advance pricing agreements are deals between companies and regulators that outline how sales among a company’s international subsidiaries will be treated for tax purposes.
Under the terms of Microsoft’s agreement, since 2011 the company has recorded more than 8 billion pounds of revenue from sales to British customers at its Irish unit, the Sunday Times said.
The corporate income-tax rate in Ireland is 12.5 percent, compared with 20 percent in the U.K.
In a statement, a Microsoft spokeswoman said the company complies with worldwide tax rules, including in Ireland and U.K. The company’s European production and distribution business has been centered in Ireland since the early 1990s, she said.
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British regulators told the Sunday Times that taxpayers don’t pay less in taxes because of advance pricing agreements.
In the U.K., Microsoft’s sales technically originate from an Irish company. The British subsidiary provides sales and marketing support, and receives a commission — taxable in the U.K.— for making that sale.
Local tax agencies typically ignore sales by foreign companies with no “permanent establishment” locally. In practice, the structure means that the majority of the value of the company’s U.K. sales winds up taxable in Ireland.
Microsoft in 2014 sold about $3.4 billion in software and services to British consumers.
The company’s local subsidiary paid $33 million in income tax.
