Strategy & Operations » Legal » Microsoft corporation tax bill £100m a year lower through HMRC deal

Microsoft corporation tax bill £100m a year lower through HMRC deal

Microsoft is avoiding £100m in corportaion tax after striking a deal with HMRC, it has been alleged

TECHNOLOGY giant Microsoft has been accused of lopping £100m a year off their corporation tax bill after securing a confidential deal with HM Revenue & Customs.

The Sunday Times reported that Microsoft struck an advance pricing agreement (APA) with the government department, which enabled the computer company to book £8bn worth of revenues from Britain through to Ireland, where the corporation tax is just 12.5%, compared to 20% in the UK.

An APA agrees on the allocation of profits between various companies.

According to the newspaper, HMRC approved Microsoft’s offshore structure — which eventually leads to Bermuda — in 2012, and its current deal with HMRC runs between 2011 and 2017.

The European Commission is now investigating APAs as it looks to decide whether they breach the rules on state aid.

Despite the structures being legal, multinational companies are coming under pressure from tax authorities to pay more tax in the country where they make their revenue.

In March, Facebook agreed to pay millions more in UK corporation tax after receiving widespread criticism over paying less than £5,000 in corporation tax in 2014, while Google has recently come under fire following its £130m tax agreement with HMRC.

Commenting on the situation, a HMRC spokesperson insisted that “APAs do not change the amount of tax due under the law or otherwise give special treatment.”

“No company will pay a single penny less in tax because of Advance Payments Agreements. These simply set out how the tax rules will apply on complex transactions ahead of time and we keep them under constant review,” said HMRC.

A spokesperson for Microsoft told Financial Director that it complies with all global rules and regulations worldwide, including in both Ireland and the UK.

“Our European business, production and distribution is centralised in Ireland and has been since the early 90’s. Microsoft UK earns a commission similar to what a third party would receive for performing marketing services for Microsoft Ireland and pays tax on its income earned in the UK.”

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