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Monday, October 18, 2010

Sullivan: Microsoft Moving Profits, Not Jobs, Out of the U.S.

Tax AnalystsMartin A. Sullivan (Tax Analysts) has published Microsoft Moving Profits, Not Jobs, Out of the U.S., 129 Tax Notes 271 (Oct. 18, 2010):

Figure 4 shows that from 2002 through 2007, the profitability (measured as a percentage of sales) of foreign and U.S. operations was about equal. Given the greater value added in the United States, this is not easy to explain. Even more puzzling are the last three years, when the rate of domestic profit dropped sharply while foreign profit rose -- leaving the rate of foreign profitability higher than the domestic rate.

Chart 
Without more detailed information it is impossible to reach absolute conclusions, but the publicly available information from Microsoft strongly suggests that during the last three years, the company has dramatically stepped up its efforts to take advantage of lax U.S. transfer pricing rules. It is hard to pin down an exact number, but we are talking lost revenue to the treasury of billions of dollars each year.

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Comments

This shouldn't be a shock to anyone. Besides utilizing tax laws that are legal, which everyone tries to do, it's good advance tax planning to protect the company against higher taxes from the anti-business crowd in Washington, D.C.

Posted by: Woody | Oct 18, 2010 7:19:36 AM

This shouldn't be a shock to anyone. Indeed. But to the last commenter: anything that is legal is OK, right? So Apartheid was OK? Slavery was OK in its day? The whole profession has become corrupted by this idea that what is legal is also legitimate. It simply isn't. Microsoft should be ashamed of itself.

Posted by: Nick | Oct 18, 2010 8:51:15 AM

Good grief, to some, apparently, saving taxes is the same as slavery and apartheid. Maybe Bill Gates is just like Hitler, too.

Posted by: Woody | Oct 18, 2010 9:33:10 AM