Microsoft’s P.R. operations pull double-duty, serve as ‘tax shelter’
Software giant Microsoft has reportedly been using three jurisdictions where it operates outside the United States — Puerto Rico, Ireland and Singapore — as tax shelters to reduce its federal tax bill, the Financial Times reported.
The strategy is part of Microsoft tax planning methods, details of which the Washington-based company reluctantly disclosed to the Securities and Exchange Commission in its quarterly report filed last month. That was when the company revealed for the first time that most of the $50.2 billion in cash it has amassed is held in so-called “low-tax regional centers.”
Microsoft has had presence in Puerto Rico for more than two decades. The eastern town of Humacao is where it operates its only wholly owned manufacturing facility in the world. Out of that plant come the millions of software and game CDs and DVDs sold throughout most of the planet.
In the SEC report, Microsoft admitted it had generated a “higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from continued emphasis on producing and distributing our products and services through our foreign regional operational centers in Ireland, Singapore and Puerto Rico, which are subject to lower income tax rates.”
Microsoft also said approximately $42 billion of the $50.1 billion it has in cash reserves is held by its foreign subsidiaries and is subject to material repatriation tax effects. That is 83 percent of its liquid assets.
Furthermore, the Financial Times also reported that some 62 percent of Microsoft’s international income came from the three aforementioned manufacturing hubs last year, even though the two island nations and Puerto Rico only accounted for 42 percent of the company’s international revenue.
In its report to the SEC, Microsoft also mentioned that the Gov. Luis Fortuño administration’s recently implemented tax reform, which changed tax rates for the island’s corporate sector, somewhat offset its company-wide expenses. However, the company did not say how much the new tax structure helped lower its operational costs.
“U.S. companies face a tax bill on cash they bring back to the U.S. and use for regular corporate purposes such as paying dividends and mounting share buy-backs,” the Financial Times reported. “That has prompted a growing number to leave cash overseas and instead borrow to meet domestic needs, as Google did last month.”
In its quarterly report for the period ended March 31, Microsoft reported $5.2 billion in net income and nearly $100 billion in assets.