Average Nurse Pays More Tax than Multi-Billion-Dollar Microsoft Subsidiaries

Individual care workers pay more tax than entire multi-billion dollar subsidiaries of Microsoft, according to the results of an investigation published today.

This report by the Centre for International Corporate Tax Accountability and Research (CICTAR)  exposes how Microsoft uses a web of shell companies in renowned tax havens to funnel money out of public budgets and into offshore accounts.  It examines how Microsoft Global Finance – a tax resident of Bermuda with no registered employees – has been reporting billions in profits, while paying no taxes. 

The analysis also reveals how Microsoft rakes in billions from governments contracts across the world while aggressively minimizing its tax contribution at a time when people are facing brutally underfunded public services such as healthcare and education. 

In a recent PR Blitz, Microsoft claimed to be a key actor in helping deliver the United Nations Sustainable Development Goals. Yet behind the scenes, Microsoft has been leading aggressive lobbying efforts to water down proposed changes to the global tax system which would provide governments with the vital funding needed to achieve the SDGs.

Rosa Pavanelli, General Secretary of global union federation Public Services International said: “We all know that Microsoft Global Finance – a subsidiary with billions in turnover yet no employees -  isn’t based in Bermuda for the good weather. This sort of behavior by one of the world’s wealthiest corporations is infuriating for frontline workers who are struggling with understaffing, budget reductions and cuts to our public services. 

Microsoft is trying to link its brand to sustainable development - but behind the scenes the company is ripping tax revenue away from our health and education systems while its lobbyists undermine attempts to build the fairer global tax system we need to fund the SDGs.”

Jason Ward, Principal Analyst at CICTAR said: “Microsoft boasts of profit margins of over 30% to its shareholders. Yet, in UK, Australia and New Zealand, filings show returns of 3-4%. It does not seem credible that these wealthy markets are underperforming so dramatically. This type of discrepancy is a huge red flag for tax avoidance. A deeper analysis of the situation shows why: Microsoft is booking profits through subsidiaries with no employees in low-tax jurisdictions. Microsoft Global Finance, for example, is an Irish subsidiary but tax resident in Bermuda. Despite having over $100 billion in total investments and booking an operating profit of $2.35 billion it paid no tax in 2020.” 

Pavanelli said: “Nurses, teachers and other public employees pay their fair share of taxes – so its only fair that Microsoft, which also makes significant income from public budgets should be excluded from government contracts until it can show its paying its fair share too. Instead Governments should be focused on building their own strong IT departments and services rather than relying on irresponsible, unaccountable multinationals.

Microsoft benefitted massively from the covid pandemic: as the world went online, their sales went through the roof. Meanwhile, health workers were fighting the disease in under-funded hospitals. Now we find out that Microsoft is structuring its business to avoid paying its share towards vital services like healthcare. ”  

“There is a solution: the Global Reporting Initiative has developed a new Global Tax Standard which corporations with nothing to hide are already implementing – but which Microsoft has so far ignored. Governments should make these sorts of standards mandatory for corporations seeking to profit from public contracts.” 

These revelations also highlight the inadequacies of the EU’s new public country-by-country reporting regime. Tax campaigners had long pushed for global reporting to force multinationals to declare their profits for every jurisdiction in the world. However, the final legislation will only oblige corporations to report for countries in Europe and on a limited list of tax havens. Bizarrely, the list does not include Bermuda, where companies like Microsoft exploit zero tax rates on profits to avoid tax bills elsewhere. By maintaining tax secrecy for places like Bermuda, the EU continues to shield tax avoiders from much needed scrutiny

New global measures under negotiation – such as the OECD BEPS process –do not go far enough in dealing with the sorts of opaque corporate structures and aggressive tax minimisation strategies outlined in the report. Instead, Governments need to force all multinationals to publicly report where they make their profits and where they pay their taxes. Furthermore, we need rules that make sure corporations pay a minimum effective tax rate of at least 25%. If these global initiatives can't stop tax dodging, countries must impose withholding taxes on multinationals to claw back revenue.” 

Background 

Multinationals seeking to avoid taxes often post small profits in big, wealthy countries where they earn a lot of revenues and then employ creative accounting to move the profits elsewhere. This way, they can be booked in a jurisdiction where the money will be taxed less, or not at all. This report appears to show such behaviour by Microsoft.  

This is not the first time that Microsoft’s tax behaviour has aroused suspicions: 

• Before the Trump administration’s Tax Cuts and Jobs Act, which gave corporations a tax break for repatriating foreign profits, Microsoft had accumulated $142 billion in offshore profits – the third-most of any U.S. corporation, after Apple and Pfizer. The Institute on Taxation and Economic Policy estimates that, by choosing where it booked profits, Microsoft secured an average tax rate on those offshore profits of just 3.3%. 

• Microsoft’s profit shifting is the subject of an ongoing audit by the U.S. Internal Revenue Service, one of the largest audits in the tax authority’s history. The investigation revealed Microsoft used intracompany sales to exploit a deal with the Puerto Rican government that lowered its tax rate in the U.S. territory to almost zero. 

• A Microsoft subsidiary in Ireland booked $315 billion in one year, equivalent to nearly three quarters of Ireland’s GDP. However, the entity was tax resident in Bermuda and so paid zero in corporate income tax. 

• The Australian Taxation Office is conducting an audit of Microsoft Pty Ltd’s Goods and Services Tax payments from 1 October 2013 to 31 December 2017 

This new report by CICTAR, Microsoft: Gaming Global Taxes, Winning Government Contracts, uncovers a largely unreported network of companies spanning from Ireland to Bermuda to Puerto Rico, Luxembourg, Isle of Man and Singapore which could be significantly reducing Microsoft’s tax bills in countries around the world while winning lucrative government contracts.  

Microsoft’s response to allegations in the report, was:

‘Microsoft is fully compliant with all local laws and regulations in every country in which we operate. We serve customers in countries all over the world and our tax structure reflects that global footprint.’

For all media enquiries please contact Duncan Bray: d.bray@woodrowcommunications.com 

ENDS

Centre for International Corporate Tax Accountability and Research

CICTAR is an independent research body, formed by a coalition of unions and civil society organisations to provide workers and the community with better information about the tax arrangements of multinational corporations.

Public Services International

Public Services International is a Global Union Federation of more than 700 trade unions representing 30 million workers in 154 countries. We bring their voices to the UN, ILO, WHO and other regional and global organisations. We defend trade union and workers' rights and fight for universal access to quality public services.