As I have noted earlier today, the Mail put out an estimate of £159 million of tax avoided by Microsoft in the UK today. In my blog I noted this was not my calculation (the main story and number were published before I spoke to any journalist or knew the Sunday Times had also looked at this issue) and that I thought it looked high.
I now confirm I do think it looks high.
I have looked at Microsoft's 10-K accounts for 2012 (available on link from here). The turnover to Jun 2012 was $73.7 bn and the profit pre tax was $22.26. That's a margin of 30.2%.
Tax was declared of $5.289bn, of which £2.388bn was in the US, $1.947bn was international but not specified and $0.954bn was deferred.
Now it's been reported that Microsoft has a UK estimated trade turnover of £1.7 billion but according to reports only £663 of this goes through Microsoft UK, the rest being billed from elsewhere. The suggestion is that Luxembourg is used.
If the UK sales are really £1.7 billion then the UK profit margin should be, assuming homogenous margins (and there is no reason not to, in my opinion) about £513 million.
Tax due on that would be about £122 million.
It has been reported that £19 million was paid.
That would seem to suggest tax saved of £103 million, and not £159 million, which looks like a journalists error.
If true, that scale of avoidance remains considerable and helps explain why Microsoft has an overall tax rate of less than 20% compared to the 35% (0r more) US tax rate. The 10-K implies the overseas rate was under 14% and admits it was low due to makinng sales throgh Ireland, Puerto Rico and Singapore, all clearly chosen for their low tax rates. But I think the record needs to be put straighter than what appears to be an over-estimate at £159 million.
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[…] to that figure which may, or may not therefore be correct and which feels to me to be rather high) [Please see comment made subsequent to first posting of this blog here: I have now published reason…]: Microsoft pays no tax on £1.7billion of online sales in the UK thanks to a legal loophole, it […]
I have a very simple question for you:
If I purchased, online, a DVD version of Office 8 from MS in the US, and had it posted to me in the UK, where should income tax be paid.
The answer is that the UK version is shipped from Ireland and the income is taxed there – or rather, is probably not taxed there
I recently ordered windows 8 by download. The website I ordered it from was the main US one, but when I was billed it was from a separate distribution company based in Germany. I assume this sale is then taxed in Germany?
Possibly – but unlikely
Ireland is the EU hub
“The Microsoft contracting entity for this agreement is Microsoft Regional Sales Corporation if you are located in the following countries: Australia, Bangladesh, Hong Kong, India, Indonesia, Korea, Malaysia, New Zealand, Philippines, Singapore, Sri-Lanka, Taiwan, Thailand, and Vietnam. The Microsoft contracting entity for this agreement is Microsoft Ireland Operations, Limited if you are located in any country in Europe, Middle East or Africa.”
So any business done in EMEA is done with Ireland.
Thanks
“The average effective book foreign tax rate for the Irish, Singapore and Puerto Rican companies was approximately 4% – – 5.69% in Ireland; 2.78% in Singapore and 1.03% in Puerto Rico.”
http://www.finfacts.ie/irishfinancenews/article_1024937.shtml
http://www.finfacts.com/irelandbusinessnews/publish/article_10005150.shtml