Microsoft Corporation Fined $140M For Evading Taxes In China

Microsoft Campus
A building on the Microsoft Headquarters campus is pictured July 17, 2014 in Redmond, Washington. (Stephen Brashear/Getty Images)

Microsoft Corporation (NASDAQ:MSFT) will have to pay $140 million in back taxes to China concerning its first significant case of cross-border tax evasion in the country, says a report from Reuters. Chinese regulators are increasing pressure on the U.S. corporations doing business in the country.

Is it Microsoft?

A report in the China’s Xinhua official news agency stated that a U.S. company, not mentioning the name will pay the Chinese government 840 million Yuan ($137 million) in back taxes and interest along with 100 million Yuan in additional taxes per year in the future. The report said that the name of the company starts from “M” and falls in the category of the world’s biggest 500 firms and operates a wholly owned foreign subsidiary in Beijing started in 1995.

Xinhua said that the company in question posted loss for the six years in China, exceeding 2 billion Yuan whereas the industry reported profit, such behavior attracted the tax authorities. Going by the description Microsoft is the only company that qualifies, says Reuters.

There was no confirmation from Microsoft Corporation (NASDAQ:MSFT) but no denial as well over the speculations that it is the one paying back taxes. Microsoft spokesman in an emailed statement to Reuters informed, “In 2012 the tax authorities of China and the United States agreed to a bilateral advanced pricing agreement with regards to Microsoft’s operations in China.” The spokesperson noted that Microsoft pays taxes to China under the term of agreed advanced pricing agreement.

Microsoft already in trouble in China

The Redmond, Washington-based company stated in its annual report 2014 that its overall effective tax rate was 21%, significantly below the standard United States corporate rate of 35%. A lower tax rate is backed by the fact that it receives earnings through “foreign regional operations centers” in Ireland, Singapore, and Puerto Rico.

Microsoft Corporation (NASDAQ:MSFT) was already in the trouble in China as it was being probed by anti-trust regulators. There are scant details over the case, but experts believe that it was initiated only after Microsoft scraped the support for Windows XP in April, and indirectly forcing users to upgrade to Windows 8

In pre-market trading today, Microsoft shares were up 0.06% at $47.50, and year to date stock is up almost 27%.