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Microsoft’s $28.9B Tax Battle Highlights Rising Transfer Pricing Risks for GCs By PAUL SUTTON
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n October, Microsoft announced that it had received a demand for $28.9 billion in back taxes from the IRS, plus penalties and interest. The demand relates to a long-running transfer pricing dispute concerning the use of regional centers in Singapore, Dublin and Puerto Rico to distribute software, reducing Microsoft’s effective tax rate. Microsoft has stated that it will
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contest the IRS’s demands, arguing that its existing provisions for tax contingencies are adequate. Nevertheless, the announcement shows the scale of transfer pricing risks and raises the question of how general counsel should help mitigate those risks. Other high-profile groups affected by large transfer pricing liabilities include Coca-Cola, which faces a $12 billion tax bill if a 2020 ruling of the
JANUARY 2024
U.S. Tax Court in favor of the IRS is not overturned. There is also the case of McDonald’s which, in 2022, agreed to pay €1.245 billion in back taxes and fines to the French tax authorities, in connection with intra-group franchise fees. Transfer pricing risks are not confined to ultra-large corporates. Every business with cross-border operations should assess transfer pricing risks and put in place BACK TO CONTENTS
