A recent report from ProPublica alleges that tech giant Microsoft went to court and lobbied Congress to change a law to fight an IRS investigation into billions of dollars in tax-free profits it had shifted to Puerto Rico.
A recent report from ProPublica published by Business Insider alleges that tech giant Microsoft Corp. shifted $39 billion in U.S. profits to Puerto Rico in 2005 where tax consultants at KPMG had convinced the territory’s government to give Microsoft a negligible tax rate. The IRS allegedly began an investigation into the practice which resulted in Microsoft rallying business and trade groups such as the U.S. Chamber of Commerce, lobbying Congress and persuading members of Congress to propose laws that would remove or limit the tools that the IRS could use.
Microsoft had shifted at least $39 billion in U.S. profits to Puerto Rico, where the company’s tax consultants, KPMG, had persuaded the territory’s government to give Microsoft a tax rate of nearly 0%. Microsoft had justified this transfer with a ludicrous-sounding deal: It had sold its most valuable possession — its intellectual property — to an 85-person factory it owned in a small Puerto Rican city.
Over years of work, the IRS uncovered evidence that it believed laid the scheme bare. In one document, a Microsoft senior executive celebrated the company’s “pure tax play.” In another, KPMG plotted how to make the company Microsoft created to own the Puerto Rico factory — and a portion of Microsoft’s profits — seem “real.”
Meanwhile, the numbers Microsoft had used to craft its deal were laughable, the agency concluded. In one instance, Microsoft had told investors its revenues would grow 10% to 12% but told the IRS the figure was 4%. In another, the IRS found Microsoft had understated revenues by $15 billion.
ProPublica outlined the steps Microsoft took to fight back against the IRS, writing:
Microsoft fought back with every tool it could muster. Business organizations, ranging from the U.S. Chamber of Commerce to tech trade groups, rallied, hiring attorneys to jump into the fray on Microsoft’s side in court and making their case to IRS leadership and lawmakers on Capitol Hill. Soon, members of Congress, both Republicans and Democrats, were decrying the IRS’ tactics and introducing legislation to stop the IRS from ever taking similar steps again.
But according to the report, a resolution to the overall situation has yet to be reached:
At the end of 2017, the Trump administration and Republican Congress came through. The Tax Cuts and Jobs Act required U.S. companies to bring home those foreign profits, but at a one-time rate ranging from 8% to 15.5%. So, instead of a $45 billion tax bill, Microsoft says it will pay $18 billion under this provision, a savings of $27 billion.
Time marches on. But the IRS and Microsoft are still in court, the clock still stopped.
ProPublica, however, has since updated its article, adding that a U.S. District Court judge recently ruled in the favor of the IRS, opening the door to a full audit by the agency.
Breitbart News will continue to follow the story closely. Read the full report from ProPublica at Business Insider here.