Microsoft Hit With $140 Million in China Back Taxes
The vendor must pay the Chinese government some 840 million yuan, or about $137 million, in back taxes and interest, the report said. In addition, Microsoft has to pay another 100 million yuan, or $16.3 million, in taxes a year ahead to satisfy the government’s assessment.
Reuters called the case the first major episode of cross-border tax evasion in China, clearly an offshoot of increased attention and pressure by Chinese regulators on U.S. businesses operating in that country. Chinese regulators this year have zeroed in on Apple (AAPL), Microsoft, Symantec (SYMC) and Qualcomm (QCOM) among others, questioning their compliance with China’s business policies.
In late July, Chinese investigators and police raided Microsoft’s offices in Beijing, Chengdu, Guangzhou and Shanghai, questioning company managers and seizing computers, contracts, financial materials and internal emails. China’s State Administration for Industry and Commerce (SAIC), one of a number of government agencies that monitor anti-trust activities, subsequently posted a note on its website warning Microsoft not to hamper its investigation.
Microsoft chief executive Satya Nadella in late September met with SAIC boss Zhang Mao and repeated the vendor’s pledge to cooperate with Chinese authorities, going so far as to promise to hand over information requested by investigators in a timely fashion.
According to the Reuters report, Xinhua didn’t directly identify Microsoft by name, instead referring to it as “M” and as one of the world’s largest companies that set up a wholly-owned foreign subsidiary in Beijing in 1995, leaving the reference to Microsoft fairly obvious.
Microsoft didn’t deny it’s the company to which the Xinhua report refers.
“In 2012 the tax authorities of China and the United States agreed to a bilateral advanced pricing agreement with regards to Microsoft’s operations in China,” a Microsoft spokesperson said in an email to Reuters. “China receives tax revenue from Microsoft consistent with the terms of the agreed advanced pricing agreement.”
The Xinhua report, as recounted by Reuters, said Microsoft admitted to tax evasion even though it reported losses for six years in China exceeding 2 billion yuan. Its competitors, on the other hand, showed profits from conducting business in China, leading government regulators to conclude Microsoft had skirted paying taxes.