Transfer pricing is sort of just a pile of black magic. Microsoft's American business is required to charge their European subsidiary some "fair market price" for the Windows intellectual property, but what is a fair price for a license to sell Windows on the European continent? Unlike with fungible goods, there is no established market for this product that the IRS can easily refer to.
In this case Microsoft is saying that some amount of their IP was developed by their overseas subsidiary and thus doesn't need to be included in the transfer pricing calculation, so in their process of making up imaginary amounts of money to charge themselves for their own products they also need to deduct that. If e.g. most of the Windows networking stack was created in Germany they need to figure out what percentage of the value of the overall Windows IP is added by the ability to connect to the internet.
Understandably, it's possible for reasonable observers to disagree on the values chosen here, this is not a case of black and white corporate misconduct (tax issues essentially never are).
Yes it is. Microsoft routes a lot of its business through the Dublin and Belfast offices. At least now they have an actual office and a DC there. Previously, it was literally just a routing office. Apple and Google do the same as well.
it can, sort of. it really depends on what you are optimizing for
there are nearly infinite permutations on how to form your business entities, what combinations of jurisdictions you use
and then you can structure which one does what operations where
additionally, all the countries compete for your business so are really competing against each other
most recognize that volume of transactions within their economy to many entities is more important than their passive taxation to one governmental entity, so they incentive the former
Part of me is like: 25% tariff, blanket, on everything unless there's an exemption. The list of exemptions can then be carefully curated. I don't care if it's 500 pages long for everything from honey to computer chips; but then at least we know that stupid tax stuff is unprofitable.
part of me is like: why does that particular governmental entity deserve additional payment just because its regulatory environment is uncompetitive in that regard and can't balance its own budget.
> Today, we’re sharing an update about our ongoing audit with the U.S. Internal Revenue Service (IRS), [… which has been investigating] how we allocated our income and expenses for tax years beginning as far back as 2004. […] The IRS says Microsoft owes an additional $28.9 billion in tax for 2004 to 2013, plus penalties and interest.
“Many large multinationals use cost-sharing because it reflects the global nature of their business.”
A comparable example might be Apple, where sales of my (american) app being sold from (american) servers somehow curiously involves the Republic of Ireland and their low corporate tax rates…
Apple pays the majority of taxes to US. They report US income and pay taxes for that to US. Ireland is involved only so far as EU income. So if your American app is sold to European users, the income is recognized as EU, and reported to Ireland.
Of course it is valid. The principal on which much of taxation is based is that it is a tax on the benefit that the income provides. And that benefit accrues in the US.
The only way it can be claimed to be invalid is by conflating legal with moral.
You're suggesting that their EU sales shouldn't pay EU income at all, rather US income taxes instead? Usually the criticism of this is the opposite direction, that sales in Germany should pay taxes in Germany.
That used to be true, but is no longer. Currently Apple et al pay 12.5% corporation tax in the Republic of Ireland, unlike the past where this rate existed but was notional as most of the revenue was ultimately booked to a real tax haven like Bermuda et al.
Until then, not going to happen IMHO. Ireland, Luxembourg, and the Netherlands benefit outrageously from this and since they can veto stuff it's really hard to plug these holes. I think Ireland gave up some ground in this regard since its position was starting to really annoy other EU members.
This is a common misconception but not actually true.
If Apple sells a copy of your app to an American customer the revenue from their royalty is booked to Apple Inc. (the U.S. company) and they would pay U.S. income tax on that sale.
The only time the sale would be booked to their Irish subsidiary is if the customer was located in Europe, or it would go to one of their other international subsidiaries depending on the specific location of the customer.
Legal BEPS exist and is more complicated than this oversimplification. While Apple didn't do Stanley Works "moving" to Bermuda, Tim Cook is no slouch in the financial domain as that was (and is) his wheelhouse. The calculus involves a myriad of factors including a risk appetite, leadership ethics, lots of data, and decision support. As an aside, I once parted ways with 2 potential business partners because they were on the privately-admitted illegal side of BEPS and tax minimization in speech and action. (Last I heard, they're lobbyists for political interests based in another country.)
Also, the books for taxes and the books for securities regulators aren't precisely equivalent per jurisdiction based on how things are counted or not counted. For example, in general, Norwegian and US accounting practices tended to be/are vastly different in some areas... hence a need for local external auditors.
Sure, but not sure how that’s relevant to my point that Apple does not actually move US profits offshore. The major controversies around Apple’s tax practices are from:
1. Apple not paying US tax rates on products sold outside of the US because that money is kept offshore instead of being repatriated, and
2. Apple paying low Irish tax rates on products sold outside the US instead of the specific tax rate of the country where the product was sold.
(1) I don’t find all that controversial because they would technically owe US taxes on the money if it was ever brought home, but (2) is understandably more controversial. Nonetheless given that Apple won their appeal against the European Commission it might not actually be illegal under EU law to do what they did.
It's simple enough, an Irish company called Apple licenses its very valuable IP to its entities in cheaper countries so they can do things like manufacturing, server farms, customer support.
(It also carries on these some of these functions in Ireland, as it happens, and pays a ton of tax at the relatively high income tax rates there.)
It's frankly curious to me when a multinational chooses to base itself anywhere less favourable.
At one point, it wasn’t an Irish company. Now technically the American company sold or transferred its IP to the Irish company. But it did so as a fiction, to avoid taxes, and neither I nor a government I help elect are obligated to honor that fiction.
Of course they are, it’s a contractual agreement that is within the law. The fact that you don’t like it could not be less relevant, you don’t matter. If the government doesn’t like the law, they can (try) to change it but that has to go through the actual process. They are welcome to be as mad as they want that their law is poorly written but it is still their law.
I believe "their law" is what is being criticized, and GP's "government that I help elect" would do away with "their law." Pointing out that the law being criticized as bad is in fact a law is at best a tautology...
Every law is judged with the intent behind the action... except for taxes which is the single exception I know of. And here the intent is pretty clear.
I hope (and think) that laws are judged primarily by their text and entirely so when it can be determined that the facts match the text even if many of us wish the text was different in light of these specific facts.
Criminal trials carefully lay out how the state believes the actions of the accused meet each required element of the crime. They don’t get to say “Foo definitely killed Bar. The law intends for people to not kill each other, and Foo meant to, therefore Foo is guilty of 1st degree murder.” Rather, they have to prove Foo’s actions met all required elements of the charge.
If you rear-end me while I’m stopped at a light, your intent doesn’t matter, only your actions. If you fail to stop for a school bus displaying red stop lights, your intent doesn’t matter.
I think the IRS step doctrine is relatively rare in legal interpretations, but at a minimum, it’s not “every other law is interpreted that way”.
I don’t take a position on Microsoft’s actions here, other than “if it can be shown to be plainly compliant with the law as written, I’m uncomfortable with the law being changed during interpretation such that it’s deemed to be non-compliant.”
> If you rear-end me while I’m stopped at a light, your intent doesn’t matter, only your actions. If you fail to stop for a school bus displaying red stop lights, your intent doesn’t matter.
Huh? In both of these examples, intent 100% matters. If I rear ended you because I had a medical emergency vs I was texting on my phone vs I had a bout of road rage and wanted to kill you vs I know who you are and you’re sleeping with my wife so I followed you from work to try to kill you:
All VERY different levels of potential punishment based entirely on my intent.
100% fair point. I was thinking the other way: when you accidentally ran into my car, the fact that you didn't mean to do it doesn't excuse you from liability for the damage to my car (even if you had a medical emergency).
You're absolutely right that overt intentional assault is different than an accidental collision.
> If you rear-end me while I’m stopped at a light, your intent doesn’t matter, only your actions.
Bullshit. If you intended to do it, it’s something like assault or attempted murder. If you didn’t, it’s likely a civil traffic ticket and an insurance claim.
SCOTUS precedent permits use of legislative intent to resolve ambiguously worded legislation, too.
> I hope (and think) that laws are judged primarily by their text and entirely so when it can be determined that the facts match the text even if many of us wish the text was different in light of these specific facts.
The canonical example of this is a restauraunt banning all head coverings. Despite the fact that technically everyone must adhere to it, since it disproportionally affects those who wear hijabs, it's considered a violation of civil rights.
These tests are created to help lower courts navigate grey areas, negligence is an area where this is applied a lot.
> I hope (and think) that laws are judged primarily by their text and entirely so when it can be determined that the facts match the text even if many of us wish the text was different in light of these specific facts.
The facts do matter when you are judged, laws aren't code. The only reason taxes are the single exclusion to this rule is because there's a massive amount of money to be made. You are not bound to the same justice system as them.
Actually there seems to be a lot of intent in tax law, reading the wikipedia page about the Apple/Ireland controversy - some tax mechanisms/structures are specifically called out as not being available for firms looking to reduce their tax bill, use must be for genuine business requirements only.
despite what a lot of people think, you can ask for forgiveness from the IRS and will typically get it if you're a first time offender and it's clear your intent wasn't malicious.
Same with HMRC in the UK, as an individual taxpayer if you call them up and say “I screwed up, can you help me sort this out?” then they’re quite good at helping and often able to lift late fines etc.
I think this is more of an Anglo-Saxon vs rest of Europe distinction. In UK (and presumably US) the letter of the law is more important than the intent. In the rest of Europe the intent is more important than the exact letter.
In both cases it is up to the judiciary to make the trade-off/judgement.
Anglo-Saxon? What has that to do with Common vs. Civil Law? Or is it a magic term like "Caucasian" or "Judeo-Christian" that just handwaves some psuedo-historical distinction for "us vs them"?
They are probably claiming that English Common Law differs from Code Napoleon, and Roman Law in general, in the way they claim. As someone else mentions, they have it backwards.
No it's definitely true for taxes as well. Even on a tiny individual level you can argue with the tax authorities about whether something was purchased for business or personal use for example.
That tax break "Double Irish Dutch Sandwich" is being phased out. It involves both those countries with one of the Irish companies managed out of Bermuda.
It has shifted to other schemes now. https://en.m.wikipedia.org/wiki/Double_Irish_arrangement
The idea that the business' value is being created in Bermuda (in Google's case, but there will be similar things going on here) is a fiction. The idea that what creates the value is a single concrete piece of intellectual property is a fiction. The idea that that piece of intellectual policy was transferred to Bermuda is a fiction. The idea that what was transferred could be legitimately valued at zero when transferred and yet suddenly responsible for 100% of the business' value in subsequent years is an especially blatant fiction.
I'd love to see the government of Bermuda nationalize that piece of intellectial property and claim all of Google's global income. They've made such a careful, vigorous legal argument that it's responsible for 100% of their revenue, surely they would acknowledge the things they've been claiming for years and continue to pay 100% of their profits to Bermuda.
I would like to see an experiment where a country disallowed any company from keeping any secrets at all - IP or otherwise. Everything on all the companies computers and hard drives would always be visible to competitors and the public.
While it discourages long research projects, it really incentivises fast execution and building on other companies designs.
I think companies overvalue secrecy to the point that most that are able would immediately leave. And I don't think most any industry has such a problem with willingness to execute quickly that trying to incentivize that is worth totally crushing R&D. Hell, I think the world could do with a bit more research and a bit less moving fast and breaking things.
Although in this case, this was a good use of government time even if it goes to the courts! I would like to see the government instill a culture of fear in these companies’ legal departments, that leaves them wondering them the law will change to hit them.
Yes it is, because this one negatively affects enough people that the law should make a special case to disallow it. Contracts are enforceable when laws say they are enforceable, but governments are free to change laws.
If the government says it is a fiction, it is a fiction.
> "a ton of tax at the relatively high income tax rates there"
Firstly, that's not Apple paying income tax, that's their employees.
Secondly, they don't pay much in the way of corporation or other taxes that usually apply because of a sweetheart deal (Google also has one IIRC), which is why much of the EU is up in arms about the Irish government's behaviour here, that effectively allows these multinationals to operate across the EU without paying the usual expected taxes, giving them an advantage over local businesses and depriving governments of income, and there have been various court cases about it.
"Sweetheart deals" are not allowed in the EU, and whether or not there was one in this case is a matter of controversy[0]. In fact the EU courts have decided that there was no breach of law by Apple, though a further appeal maybe yet be made. It's easy to sling around accusations like this, but it's important to check the facts at the same time.
Whether they were precisely sweetheart deals or not, it remains that Apple and the Irish government did negotiate 'deals' and that Ireland has facilitated a lot of tax reduction for large US multinational corps, which much of the EU believes costs them both revenue and competitiveness.
It is interesting that the last news about this is the EU saying they are going to appeal, three years ago.
I find the use of such schemes pretty awful regardless of whether they technically fall inside of the law.
I can't disagree with any of that, except to say that I don't think the choice that a multinational makes is between Ireland and nothing.
At some point you are making enough money that it makes sense for you to hire experts to "optimise" your tax liabilities, just like you'd hire someone to improve your IT infrastructure or your heating bill. If they didn't base their corporate structure around Ireland then it might have been Jersey or Malta or something else that got them 90% of what they had.
It sucks when the outcome is that big companies end up paying less than they're expected to and have lower effective rates than small companies. I see it not as a moral failing so much as a law of nature, like flood waters taking the path of least resistance and destroying slums before bank buildings. Reasonably people certainly differ though.
I don't think you've successfully checked any facts.
The GP correctly and idiomatically described a tax deal between RoI and Apple as a 'sweetheart' deal. This is not a legal term of art. The fact that Ireland won its court case and is facing an appeal does not change the fact that something took place which exactly meets the commonly understood definition of a sweetheart deal.
AFAIK Delaware incorporation is more benign and has more to do with predictable courts and lots of case law existing rather than paying as little tax as possible.
The infraction happened in 2004-2013. So that would be over three billion dollars per year.
Microsoft’s operating income in fiscal year 2005 was about $15B and in 2013 almost $27B. So you can kind see where the IRS is getting this number: if they believe that Microsoft evaded tax worth about 10-15% of its earnings before taxes, that’s how it would add up to this whopping sum.
It seems like Microsoft believes they can settle for something much lower. The stock price doesn’t seem to be hurting pre-market at all.
I think a lot of the market is people pointing at other people as if they had done the due diligence that they couldn't be bothered with, and those people pointing back.
They had outstanding product-market fit. The _only_ problem is that the market of people who have juice bags and do not know how to open them (I.e. two year olds) do not make purchasing decisions.
On paper it makes sense to have a microprocessor guide the pressure used on fruit and vegetable pulp [0]. Between that and the introduction of software to manage the fruit supply chain, the Juicero embodied Marc Andreessen's prophecy [1].
Unfortunately, they got the verb wrong: software is eating _not_ drinking the world.
Of course not. However, it wasn’t prepackaged juice (liquid), it was pulp, the part of plants from which juice is squeezed.
Have you ever seen one of those machines in restaurants that from a hopper full of oranges, automatically slices, squeezes the juice into a glass and puts the rind etc into a composting bag? They do that to deliver a fresh glass of juice that people believe has a material difference from a can of frozen concentrate. Juicero was that but simplified and expanded to more than just oranges.
Consider the factory process of making different juices. Might use heat, introduce other molecules, etc. By performing part of the task in the factory and the final extraction onprem, there may be some meaningful differences in the consumable.
But sure, let’s all poke fun at something without considering the operational context.
> Have you ever seen one of those machines in restaurants that from a hopper full of oranges automatically slices, squeezes the juice into a glass and puts the rind etc into a composting bag
I think the other users point was that in the past the prices didn’t move because people assumed that other people knew what was going on (and they were not selling or driving prices down).
Accordingly the price might not move because of similar assumptions.
To be clear that’s just how I read that comment. I know nothing about this situation with Microsoft.
>
Big investors will have eyes and ears inside the IRS, so will have known for years about this already.
Sorry, just so I'm clear, you are claiming that major hedge funds have "moles" in the IRS that illegally funnel them the private tax information of major public companies?
At this point people assume everything is a scam, everything is "compromised", and everyone except the "little guy" is in on it. It's really silly. You might as well also claim that the IRS has moles inside of Microsoft and is compromised which is why they're going to get this $27 billion in owed payments and investors had no idea!
Better yet, the IRS and Microsoft are working together on a secret AI tax scheme and this is a cover-up for transferring large amounts of funds to the IRS or to Microsoft for the program to work.
… and yet, when an academic realized that option dating couldn’t happen by chance, it turned out many investors and CFOs were all in on the option backdating scheme, but the IRS wasn’t.
There are tons of "Expert networks" companies where they tap key personnel for market info. I have received these sort of inquiries many times in the past. Hedge Funds are major users of these.
I can easily see the line of inquiry not breaking the law but getting close enough to extrapolate information on the companies being targeted (IRS personnel, for example), without outright naming them.
This is kind of digital fingerprinting, but for companies. You don't may never get the name of the company, but at some point the questions become so specific that shoe will only fit 1-2 companies.
How many companies have personnel primarily in the US, HQ in Ireland, have revenues >1B, and sell operating systems as a primary source of revenue ?
I'm also a part of a few expert netowrks and I probably get to take phone calls a dozen times a year to help people who need information on my area of expertice.
What specific person would someone contact to findout that Microsoft has unannounced tax liabilities that wouldn't' in anyway break insider trading rules?
Who possibly could attest to this type of information and would freely offer it up? No serious expert network member would ever do this as it would be the end of their career and expose them to serious jail time.
Perhpas you could fleshout your explanation some more here.
At what point does information such as this become "insider information" and illegal to share? These "eyes and ears" need to have their taxes audited...
Big investors have a pass for doing shady stuff. They can do insider trading (up to a point where it's not considered insider trading), they can break the SEC rules to artificially reduce the share price of a company so they can buy it or drive them to bankruptcy, but a normal person like me and you can't do these things, because we don't have the money to get around with it.
Big market actors are just institutionalized corrupt people working for private companies. Change my mind.
You are correct, this is America where we do A LOT of things that are bad for us because they are profitable.
I'm writing a long form article about this idea, how in America we do stuff like private prisons, allow pollution, the "family" court system and social media for kids even though some countries can easily fix these problems we refuse to address them because just TOO much money is being made (at least that's how the divorce industry was explained to me).
> they can break the SEC rules to artificially reduce the share price
No, stock manipulation with falsification of bad information is also heavily prosecuted.
Can you give specific examples where you think this happened? You might not be using the correct definition of “inside information” or “artificially reduce”.
A recent one: Unity CEO sold a huge amount of shares a week before they announced the pricing change on Unity.
Pfizer top-people bought a huge amount of shares before their vaccine was publicly approved and they sold it the moment the public was made aware that there was a vaccine for COVID-19 approved by the FDA
Microsoft bought a lot of Activision Blizzard shares a few days before they announced they would buy the company.
Having this thin line separating what's allowed and what isn't is not ideal. If you have privileged information, for example, that your product will be approved, something that isn't public knowledge, it should be considered insider trading.
> A recent one: Unity CEO sold a huge amount of shares a week before they announced the pricing change on Unity.
It had to be an already scheduled sale or he will get busted. That doesn’t fly with the SEC.
> Pfizer top-people bought a huge amount of shares before their vaccine was publicly approved and they sold it the moment the public was made aware that there was a vaccine for COVID-19 approved by the FDA
By shares with expectation of approval is fine. They didn’t know it was approved.
> Microsoft bought a lot of Activision Blizzard shares a few days before they announced they would buy the company.
Do you realize how stupid this statement is? You buy a company by buying shares. Building up a stake before tendering an offer is the normal process.
> If you have privileged information, for example, that your product will be approved, something that isn't public knowledge, it should be considered insider trading.
That is insider trading and would be prosecuted if that’s what happened.
Never, because "insider information" is a legal concept that doesn't correspond with what people intuit it means. People wrongly think insider trading is when one party unfairly profits from having important information other investors don't have.
Also, sharing "insider information" isn't illegal. In some narrow cases profiting off of "insider information" is illegal, but in most cases it's not.
If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly.
Every public company has an Investor Relations department that talks to institutional investors every day. Investors wouldn't bother talking to IR if they could get the same information somewhere else. And these communications are not made public and shared with other investors.
Abbreviating that is so misleading, it's incredibly hard to not see it as bad faith! MNPI means "material non-public information". You're saying "non-public information is fine but material non-public information is not", without making it as obvious.
Yes, it has to be material. "Owes $30b in taxes" is ABSOLUTELY material. If on top of that you learn about it from IRS insider contacts, enjoy your time in prison.
> SEC regulation FD ("Fair Disclosure") requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.
The entire point is that MNPI is a legal concept and information can be both nonpublic (i.e. private correspondence) and tradable for profit (i.e. material) and yet does not constitute MNPI.
You're making the exact mistake that I've repeatedly tried to correct. There is no bad faith on my part.
Your personal opinion on what "material" means might differ from the court's (and also differs from mine, at least how you phrased it), but I can assure you, a $30bil tax bill is DEFINITELY material.
It's a "legal concept" in the same way that every word used in a lawbook is a legal concept; the US is based on case law, and there is a large amount of precedent for this definition in particular. Again, refer to the Wikipedia for some examples.
I see this mistake a lot among programmers (also myself at some point). They (we) naturally think law is like a rulebook where you go through a decision tree and then arrive at a perfect conclusion, but the truth is that it's up to the courts to decide on the specifics. And they might disagree on those things with you, and with each other, but in the egregious cases disagreements are rare.
The SEC takes enforcement action in about 40 insider trading cases in a typical year. Most result in fines. Less than half of those cases get forwarded to the justice department. Big "egregious cases" of insider trading cases are practically unheard of. And that's not because wall street is especially virtuous.
Remember that agencies like the IRS, FDA, SEC must not leak a single bit of information (investigation/no investigation). Because that single bit is sufficient to profitably trade on. A hedge fund doesn't need to know the specifics or the exact date of an enforcement announcement in order to make out like a bandit. A tiny amount of signal is sufficient. In fact, a tiny amount of signal is preferred. If a firm knows for a fact that MSFT is in trouble with the IRS they can't trade on it. But if a little bit of information leaks from an agency, that's gold.
> that's not because wall street is especially virtuous
It's because insider trading is a generally stupid crime. If you're on Wall Street, there are better ways to make money. The people who insider trade are largely those who think Wall Street is constantly doing it--it's an old joke in finance.
If you make inferences from non-public information (e.g. talking to the CEO) you can freely trade on that, provided the CEO hasn't shared MNPI with you directly
This is pretty much the literal definition of insider trading, but feel free to follow this advice if you plan on having a long discussion with the SEC while they audit all of your trades for the past decade.
And these communications are not made public and shared with other investors.
This is false. IR departments will only discuss information that is already made available to investors, through press releases or public compliance filings (such as SEC filings). They absolutely will not provide nonpublic material information just because someone asks, and in the event they do so, it's literally their job to provide an investor communication so that the information is publicly available.
Unfortunately it’s generally more complex than that, at least in US law - simply having material nonpublic information isn’t enough. It really matters how you got the information.
For example, when Hindenburg Research did a ton of research and discovered that Nikola was basically totally fraudulent, they traded extremely relevant information that wasn’t publicly available. Not insider trading.
Similarly, if Warren Buffet invests in a company, he knows that its stock is very likely to go up (just as a result of the halo effect around him). He doesn’t have to disclose that he plans to buy, though.
If you're an institutional investor you can just call the CEO or investor relations and ask them tough questions about their business. Sometimes you can figure out within minutes that the CEO is a bozo.
You can visit their offices and talk to the employees. Are they smart and passionate and hard-working, or demoralized and looking to jump ship?
You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC? If you write the right letter you can find out based on the kind of form letter you get in response. This information is clearly material (would move the stock if made public) and non-public (the SEC hasn't disclosed its investigation yet) and yet you're free to trade on this information because you derived it and because any investor would have gotten the same response if they had known exactly which magic words to use in their letter to the SEC.
If the CFO leaks the numbers of the quarter and you trade based on that you risk jail time. If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
You can visit their offices and talk to the employees.
If an employee tells you something that is nonpublic information, and you act on it, that would likely be considering insider trading by the SEC. There is a fair amount of case law supporting this point. Indeed, the fact that you acted on the employee's information is generally sufficient proof that the information was material; and this is in fact the most common insider trading scenario.
You can also derive material information for instance through freedom of information requests. Is a business being investigated by the SEC?
If the target of the SEC is not aware of the investigation, the SEC will not disclose that information in response to a FOIA request. On the flipside, if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market.
If you watch the company parking lot and notice that the finance department and CFO stay at work until 11pm in the week leading up to their earnings report you are free to short the stock based on this info.
Such behavior would provide no useful information about the state of a company's financials. In the week leading up to earnings reports, the CFO and finance departments generally stay late making sure the financials are in proper shape, whether or not those financials are good or bad. This is standard practice at all publicly traded companies with proper controls, because there is a very short window of time between the end of the financial period and the time it must be reported for regulatory purposes.
> if a company is being investigated by the SEC, and knows it, that is material information that must be disclosed to the market
In 2016 the SDNY ruled that issuers do not have a general duty to disclose the existence of an SEC investigation or a Wells Notice. Because "the securities laws do not impose an obligation on a company to predict the outcome of investigations".
> the SEC will not disclose that information in response to a FOIA request
Not /intentionally/, of course.
> Such behavior would provide no useful information about the state of a company's financials
Some hedge funds have done very very well for themselves by making inferences from parking lot data. You don't need to be right 100% or 75% of the time for the strategy to work, you know.
Because it implies that they're putting a lot of effort into making bad numbers look good for the report, and the assumption is that they'll either fail or the truth will come out at some point to make the short pay off.
Martha Stewart: Convicted in 2004 for insider trading related to the biopharmaceutical company ImClone Systems.
Raj Rajaratnam: Founder of the Galleon Group, convicted in 2011 on 14 counts of conspiracy and securities fraud.
Jeffrey Skilling: Former CEO of Enron, convicted in 2006 for insider trading among other charges.
Michael Milken: Financier and investment banker known as the "Junk Bond King," convicted in 1990 for securities fraud, including insider trading.
IRS started a tax investigation in 2007 of Microsoft's 2004-2006 tax returns, which has been somewhat exposed to the public due to the lawsuits along the way.
It was likely known about and also is a small percent of the market cap. The present value will also be reduced by the time value of money, which is not inconsequential over the quite a few years this will take to settle.
> It seems like Microsoft believes they can settle for something much lower.
They could hire the best lawyers, accountants, lobbyists, etc in the world. Unless someone at microsoft did something criminal, it's likely they could knock a significant portion off the tax bill.
> The stock price doesn’t seem to be hurting pre-market at all.
Microsoft's market cap is $2.5 Trillion. The one-time tax bill amounts to about 1% of its 'total value'. It's like a one time $1000 special property tax on your $100K rental property. It sucks but it's not the end of the world. Besides, even if they had to pay $30 billion in back taxes, MSFT's customers are utlimately going to pay for it, not microsoft. It doesn't affect microsoft's market share in OS, Office, Servers, etc.
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.
Back taxes have a baseline rate that grows at certain increments of lateness but is ultimately capped. I don't think it's in any way tied to the base or prime rate.
Based on what happens in my country, it could be both penalty + some interest rates based on the reference rate (which definitely haven't been zero for the past two years btw) but not equal to it.
> It seems like Microsoft believes they can settle for something much lower. The stock price doesn’t seem to be hurting pre-market at all
Given the Stock Markets inability to predict the Twitter buyout despite public documents stating Elon Musk's contract to buy at $54.20/share throughout 2022, I'm pretty sure that stock market investors are literally illiterate, unable to read public documents.
Anyone who bought Twitter at $35/share after the contracts public disclosure knows what I'm talking about.
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AMC / APE for another example. Anyone who short sold AMC and bought long APE made bank this past year (before the AMC/APE stock ticker merge there were public documents in December 2022 stating AMCs intention to merge the two one-for-one)
I believe I saw an opportunity as wide as $8 for AMC and $1.50 for a legally equivalent APE a few months ago.
Literally public documents with public court signatures and everything, but so many people remaining ignorant for months, providing anyone 'who can read' an opportunity to make tons of nearly risk free money.
There are a million reasons that those trades were not free money. e.g. it's quite expensive to short stocks like AMC. Not knowing that makes me think you weren't actually in that trade.
Start putting your money in the market and you won't be talking about easy money for "anyone who can read" for very long.
I just had another poster on HN say something similar to me - but about property investing.
Their point was something along the lines of "it doesn't take a genius to buy low and sell high".
My counter point, to which I don't believe I ever got a response, was "oh? try it then"
Markets are easy to read in hindsight. Most folks are predicting a housing market correction over the next 12 months. But, they've been doing that for the past 12 months too, and it hasn't really happened yet (very mild).
So, when to buy? The answer is that it's quite complicated, and the work is in the individual deal - it requires a lot of research, understanding neighborhoods, WFH trends, how to spot "lipstick on a pig" house flips, regulatory issues, flood zones, insurance rates, mortgage rates, warrantable vs non-warrantable loans and what properties qualify, hurricane standards, wiring, electrical service, plumbing, STR income, occupancy rates, management fees, cleaning fees and quality, long term rental income, renter risk profiles and a million other things that go into understanding whether a deal will make money.
No, it doesn't take a genius, but it does take a lot of hard work.
>AMC / APE for another example. Anyone who short sold AMC and bought long APE made bank this past year (before the AMC/APE stock ticker merge there were public documents in December 2022 stating AMCs intention to merge the two one-for-one)
This is called "pairs trading", right? Is there any way it can blow up? Remember that this is AMC, which could be out of business in six months or could go up 3000% in another idiotic bubble.
I made a fair bit of money off Twitter because it was as simple as buying stock at the market rate. Anyone who reads the papers knew the price of Twitter to the penny and could have bought in with a phone call. The sort of trade you're talking about sounds harder to pull off safely. That's no excuse for the hedge funds, of course.
I don't think it's quite that simple. After the offer was submitted he famously tried hard to NOT buy Twitter. In the end his attempts to back out of the purchase because of the supposed undisclosed bot problem were thrown out in court, but iirc he could still have pulled out by paying "only" a couple billion dollars in fines or something. I guess it comes down to "do you believe Elon Musk when he says something" and plenty of people understandably didn't.
That doesn't make them "literally illiterate" though.
> but iirc he could still have pulled out by paying "only" a couple billion dollars in fines or something.
That clause was clearly for things outside of Elon (or former Twitter)'s control. Like if a government stepped in to stop the purchase.
Elon never had a good counter argument. So it was simply a case of those who were able to read the public court documents vs the ones who believed Elons out-of-court media blitz.
Alas, the only arguments that matter in court are the arguments that are filled in court. None of the discussion points you talked about even made it to the case, they were laughed out long before Elon gave up and bought Twitter.
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Reading. It's a superpower. That's what the past year has taught me. A surpring number of people cannot read and will believe falsehoods even if they contradict written and agreed upon documents.
The biggest winners were those who short sold Tesla, knowing that Elon would be forced to sell Tesla stock to afford a $44 Billion purchase (even if $13 Billion was covered in loans and maybe $9 Billion in handshake agreements with other investors like Saudis or Larry Ellison etc. Etc.)
If you short sold Tesla and bought TWTR in preparation for the buyout event, you'd have made even more money. Etc. Etc. And some people did do that.
--------
Anyway. AMC/APE was the more recent event a few weeks ago proving the illiterate stock market traders. It's happening again and again. Tons of opportunities exist if you have the ability to read, and comprehend, the public legal text. This is absolutely not a thing typical traders can do, the price fluctuations are proof of that.
I dunno what the next event will be, but I'm keeping my eyes open for easy money.
Apart from the last paragraph, it’s a good debunking of that tired “he could have pulled out just by paying 1B$” meme. He could not, and this has been explained in quite a lot of detail on every public forum I have seen at the time.
“My man” itself is also obnoxious and condescending.
It doesn’t sound like you’re comprehending the level of reading comprehension that dragon tamer is capable of. They can literally read a sentence, understand it, and then take action, making easy profit.
Which in the context of modern anti-intellectualism makes a lot of sense it’s not unlike calling Y equals MX plus B machine learning. Soon arrogance will mean being able to form a complete sentence.
>iirc he could still have pulled out by paying "only" a couple billion dollars in fines or something.
He couldn't have. That clause protected Twitter, not him. It ensured Twitter would still get something in case outside forces, like government regulators or financing falling through, prevented the deal. It did not give Musk the right to pay a penalty and back out.
Twitter explicitly reserved the right to sue for specific performance, i.e. to force the deal through rather than merely getting damages. Musk explicitly signed away any rights to investigate or back out. Twitter was honest and forthright so any fraud claims were nonsense. Musk didn't have a leg to stand on, legally or factually.
The most he could have done was tie things up in court. But the courts can throw out bad-faith lawsuits pretty quickly.
The other guy you're talking to is being a dick. There was a concerted disinformation campaign from Musk and friends, and the papers were not willing enough to call "bullshit" on the front page. The truth was out there but hardly staring you in the face.
But hedge funds have teams of lawyers reading this stuff all day long. They have no excuse for not seeing through Musk's chicanery.
> and the papers were not willing enough to call "bullshit" on the front page. The truth was out there but hardly staring you in the face.
It kinda was, though. A bunch of lawyer-reacts at the time basically were "this isn't financial advice, but lol Musk is fucked and the Delaware court doesn't screw around or delay"
This was my first search on Google, but there were many, many, many documents of this nature.
Is this doc sufficient? Or are you looking for something else? I'm aware of earlier docs but it gets more legalize and arcane the further back you go.
By the time the trials started, the argument from Twitter was incredibly strong and well documented. But the stock price of Twitter was still like $40 so you'd have lots of opportunity to make money on the trade (Musk promised to buy at $54.20 after all)
Thanks, I did not see such a doc on the first three pages, so I am wondering if I was using bad search terms. However, looking through that document and not being a lawyer I am not feeling confident to interpret it correctly. What is a "Verified Complaint" in the first place? Are the items under "Nature of the Action" approved by the court or are they just claims of the complaining side? Also I am generally feeling not all that confident that phrases in a legal text have the same meaning I am used to.
All of that contributes to a completely different picture for me, compared to your statements. Sure, I can read documents like that (if I can find them, if I think of searching for them, ...), but I am not at all confident that my literal interpretation is sound. Thus my perceived risk of an investment would be much higher than yours.
So, maybe literacy is not the point here, but rather confidence in interpreting legal texts correctly, a good grasp of contract law and optimism/experience regarding external factors.
You DO NOT need to be a lawyer to get the arguments. By the time the discussion reaches this stage, the arcane bits are stripped out and referenced explicitly.
In fact, the jury are laypeople, just average Joe's and Jane's. All arguments must be simplified to a point that average people can understand. So it's a good point to pickup info.
---------
Here's a few key events to note on this particular trial:
1. Strong opening argument from Twitter over the contract. My opinion of course, but just read the document and get a gist of the argument yourself.
2. Weak opening arguments from Musk's lawyers.
3. Repeated reprimands from the trial judge for various mistakes the Musk lawyer team were committing
4. Inconsistency between what Elon Musk was saying in public / in the media and what his lawyers were saying in the trial.
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Note that in this special case, a judge decided the case instead of a jury. But the argument style at this late stage is simplified to the point where ordinary people / a jury can understand in any case.
That does not change that I cannot categorize the document you have linked, nor its parts, see my previous questions in that regard:
"What is a "Verified Complaint" in the first place? Are the items under "Nature of the Action" approved by the court or are they just claims of the complaining side?"
> Plaintiff Twitter, Inc. (“Twitter”), by and through its undersigned counsel, as
and for its complaint against defendants Elon R. Musk, X Holdings I, Inc.
(“Parent”), and X Holdings II, Inc. (“Acquisition Sub”), alleges as follows:
If you are trying to say this is 'difficult to read', maybe don't pick things that are answered in the first paragraph.
That does not tell me what a "Verified Complaint" really is. Obviously that is a technical term. Same with "Nature of the Action". If those points under "Nature of the Action" are merely points raised by Twitter, how can I trust them? Or did the court confirm those points? If so, I did not find where the document says that.
But let us stop here. It is obvious that you are very confident in interpreting documents like that. So I hope you are enjoying great gains from your investments based on your interpretations in similar cases.
> If those points under "Nature of the Action" are merely points raised by Twitter, how can I trust them?
You see Elons side and evaluate their followup. You follow the back and forth and evaluate who has the stronger argument.
When it gets to the point that the judge is literally reprimanding Elon Musk's council for breaking rules and shenanigans, you start buying TWTR and short selling TSLA.
You're grossly overcomplicating this. You don't come up with arguments in a trial, that's the lawyers jobs. Your job as a reader is simply to pick out the side with the better argument.
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If you are worried about form, that's not your job. That's the judges job. And if you are worried about not understanding the complete argument, that's not even your job. That's the opposing lawyers job to make a cohesive and full argument.
LOL, like they would ever do that! They will make MS customers pay for it, if they can't convince the IRS to lower the bill significantly, which they probably can.
If MS come up with significant technicalities or challenges to the amount due, the IRS will have to choose between litigating each one of them, which both costs them money and involves the risk of losing in court, or coming to an out-of-court agreement with MS.
Obviously if MS don't have anything that won't get laughed out of court, they shouldn't get much of a reduction. If your challenge to your tax bill doesn't involve anything where the rules are hard to interpret and precedent has not been set, you also won't. (If it does, your tax affairs are probably much more complicated than the average citizen. Which is obviously true for Microsoft.)
Worth bearing in mind too that the number might be an optimistic headline figure which has been rounded up in various ways by the IRS, to make themselves look tough, and to encourage MS to settle.
The IRS settles for lower amounts ALL the time, it wouldn't be even remotely exceptional if MS gets a discount. They have an entire department to handle these offers in compromise: https://www.irs.gov/payments/offer-in-compromise
Even with 30B cash in the bank, MS will do everything it can to lower that bill. First they will fight it, and take all the little wins they can get. Then whenever it's pretty clear what parts they can't win, they will then start negotiating with the IRS to try and pay 50 cents on the dollar or something.
Part of the tactic is delaying, the longer they can put off actually writing the check, the better, as money today is worth more than money tomorrow(inflation and time value of money).
I know I am in the minority but I cannot understand how mercilessly taxing providers of services that improve our lives is not... theft, honestly.
It is not about how much money they make but about about a third party appropriating what a company that provides such a big value does because, hey, you are "stealing me because I exist"...
Yeah, and if that takes a $30B hit to settle past accounting issues, that’s still $30B no longer poised for an acquisition or on hand to settle some EU action next year.
Losing a quarter of your cash reserves for no gain isn’t going to ruin today’s business but it sure will frustrate existing strategies for the future.
>that’s still $30B no longer poised for an acquisition
They accumulate that much cash because there are no acquisitions to be had in the current economic climate. I can't imagine a $30B+ company that Microsoft could acquire without massive regulatory scrutiny.
But I bet a lot of that is in long term treasuries which, if you want to use them as legal tender, are kinda down in price right now (if you don't hold them til maturity). And if they need to take a loan to pay it, those bonds are going to be at fairly high rates. Overall, it's gonna be a stock price haircut for sure. I'm guessing at least 10-20% because of all the money they could have MADE with that money.
Yep. Accounting standards dictate that a cash equivalent should be essentially as liquid as cash from the perspective of the holder. It’s safe to lump it in here.
Why should they do that? They should simply add more annoying advertising and other BS to their products, especially Windows OS. What are customers going to do, go elsewhere or switch to another OS that doesn't have ads?
No message about how greedy Europe wants to steal money from big tech, yada yada yada. Oh, it's the USA this time? Wait, does this mean that these big tech were really not paying their fair share and the USA was just slow to get caught to it? I guess so.
No it doesn't. What it definitely could mean with democrats in power is the USA becoming just as insane as Europe thinking the big corporations are the "bad guys" and we have to "drill" them.
It's a Western problem, not a Europe problem. It's more so in Europe but this contagion that big corporations are evil and governments are good is growing more and more in the US too.
This spells bad news for "MICROSOFT B.V.", the famous Dutch software company that has reported being responsible for billions of revenue of the Microsoft Corporation over those years.
Why is it bad that corporations pay taxes? Ignoring your use of sexual language to that effect, I don’t see why companies get to use tax havens to avoid paying for the Common Good that serves everyone (regardless of how much % you think it should be).
I didn’t write it was bad, I wrote very specific words. They aren’t the recipient, just like Brazil, or Canada, or any random country isnt. If thats hard for you to understand, thats exactly what I’m trying to point out: it shouldnt be hard to understand.
The “Common Good” isnt paid for by taxes, its paid by debt issuance and the taxes and other revenues pay the interest. This means that the things that would be funded already are funded, and no tax collection influences that.
Regarding “tax havens”, this is also hubris. A high tax country that doesnt know how to balance its budget has a term for a low tax nation that operates within the confines of its budget. The Cayman Islands has legislated a tax, its just at 0% right now because they dont need the money that way. They found something competitive to raise enough revenues and didnt get involved in other things. Its nobodies problem that this is now impossible for the other country from its poor spending habits.
Maybe one day you’ll see your blind spots. What I described is the reality that exists, it is already compliant to operate this way and that’s very unlikely to change. Countries compete on competitiveness for business.
You picked one of the most unequal, lowest Gini countries ; one known for tax havens at the cost of quality of life for its people. In the EU we have Ireland, which many will tell you isn’t being run well.
I don’t want to disagree with you for no purpose: I agree countries need to keep their spending in check. I live in a country that is far too generous on the wealthy (no substantial capital gains tax, corporations get lots of tax breaks). Are we competitive? No. In fact, a decent portion of graduates prefer moving to neighboring countries that offer better quality of life.
Governments don’t exist to serve corporations. They are elected for and by the people. If all countries on Earth had the same corporate tax, this discussion would be very different.
Is it? These companies and that specific structure involves paying the IRS off in “Advance Pricing Agreements” where they tell the IRS how they won’t pay taxes and the IRS signs off on it
Yea hello it’s Mr Smith here from the tax department. I’ve just been reviewing your file and it seems that you are a little short in your tax payments by…… let’s seeeee ……. ummmm …… yes, $29,000,000,000. Can you pay it now please?
"We take credit cards. Now now, Mr. Nardella, no need to get... You say we should ask Mr. Ballmer instead? I'm afraid it doesn't really... Yes, credit cards, cheques, bank transfers. My son does everything with his app, these days, maybe you have one...? I see. So when should I call back? Never, you say? Oh."
"We can send over any amount of Microsoft Points you desire, probably worth more than when we discontinued them in 2013, we'll even throw in a Game Pass for everyone! How's that?"
From the blog post[1]: "It is important to note that the IRS Appeals process will take several years to complete, and if we are unable to come to a direct agreement with the IRS, Microsoft will then have an opportunity to contest any unresolved issues through the courts."
My dad’s shuttered small business was audited last century. In his case they sent a letter saying you are under an investigation for year x, they clock resets to x years after that and they can bring action anytime. At least that’s the was it was explained to very young me at the time.
wow. they stole almost a hundred dollars worth of taxes from every american man, woman, and child. $87 by my calculation, that will be up well over 100 dollars accounting for inflation. Depending on how long they drag it out for in the courts maybe even 200
>>> Item 8.01. Other Information
On October 11, 2023, Microsoft Corporation announced the receipt of Notices of Proposed Adjustment (“NOPAs”) from the Internal Revenue Service (the “IRS”) for the tax years 2004 to 2013. The NOPAs were received on September 26, 2023. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of September 30, 2023, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest ...
So MS income for 2023 was 211 BN, EBIT on that was 88BN.
So being asked to give back 28.9BN is a big hit on anyone's scale, but it's "just" 3BN a year (2004-13) on annual profits of ~88BN - so it's not like it's their whole business model.
Intra-company transfers are a tricky way to move assets and liability around inside a firm - because it's not "really" selling there can be a lot of creativity. For example Starbucks was accused over many years of having foreign subsidiaries "purchase" coffee beans from Seattle at a price that co-incidentally matched the foreign subsidiaries operating profit - essentially meaning only the seattle firm made a profit and so only they had to pay tax.
Something similar is being suggested here. It's not clear what.
However it's worth noting that some years ago Biden announced major new funding for IRS to go after big firms. If this is part of that and if this comes to some agreement in a few years it will pay for that whole initiative several times over.
> 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.
Well even if MS are found to be liable for this tax bill, MS has in the region of $100 billion "Cash on hand" so I doubt that they will go bankrupt over this.
This sounds to me like an gigantic amount of money. I looked it up and apparently it was $136B in 2019¹ and $111B today². And Microsoft, although it is the company with the most cash on hand, is not an outlier here with Alphabet at $121B and Apple at $100B².
Because you're looking at absolute numbers and not percentages/relative values. That much cash on hand sounds absurd when you're only looking at the absolute number of it, but the amount it represents is "just" 6 months of revenue. And any good financial advisor will tell you it's a good idea to keep 6 months of earnings as savings.
A good financial advisor will recommend keeping 3-6 months of non-negotiable expenses saved, not revenue. 6 months of revenue would be a quite significant amount of savings for most people.
It is mostly about taxation. Companies get taxed where the money is made/moved. A lot of the money in big company balance sheets is in Europe where they have lower corporate tax rates. If they moved that money back to the US, they would have to pay more tax on it. However, they have less need for the money outside the US, so the money just piles up.
Note, this is a very simplistic explanation of complex global accounting regulations (eg the money is likely "physically" in New York even though it is "legally" in Europe)
The problem MS might run into is that cash might not be in the US so they would need to repatriate the money into the US potentially triggering more taxes.
(They could also get around this by taking a loan out and using the cash held outside the US as collateral).
-Companies that operate internationally make revenue and incur costs in many different countries.
-As a result, they owe taxes to many different national authorities.
-Each national authority has rules for how costs and revenues are accounted across borders.
-These rules are necessarily complex, because it’s often not clear how costs and asset transfers should be accounted from simple first principles.
-This is particularly important when accounting costs across countries, because taxable income is often based on your costs.
-For example in the US, Federal taxable income equals gross income MINUS the cost of goods sold.
-In a multinational, one critical question in figuring out costs is how to value transfer prices of goods, intangibles, and services among enterprises under common ownership.
-That is, if the U.S. division of company A and a division of company A in another country exchange assets or services, the question of how they price those goods to one another becomes important for tax reasons.
-Typically there’s a lot of accountants with spreadsheets or a software system where all this is calculated, monitored, invoiced, booked, and reconciled.
-Accounting and services for this is typically called “transfer pricing.”
-To determine how to account for these costs, each national regulator has very specific rules.
-The question is whether Microsoft adhered to these rules in how it accounted for costs and revenues between its U.S. and international entities.
-These disputes go through a very long back and forth process that often culminates in litigation, which itself can last years, or settlement.
-Microsoft says, “Because our subsidiaries shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations, the subsidiaries were also entitled to the related profits.”
-So it looks like the dispute centers around how to account for “the costs of developing intellectual property”, which can be hard if you’re developing software globally.
-Finally, there’s one aspect to consider when you see these $XXB figures. At the size of certain very big corporations like Microsoft or Apple, money does not behave like it does for you, or me, or even Sequoia Capital.
-Microsoft’s market cap is $2.4T. At that scale, money enters a kind of different state of matter.
-Money’s purpose is primarily to coordinate economic activity, especially when you’re talking about non-negligible amounts for multinationals.
-So payments among the revenue agencies of various countries and their very large private multinationals are in kind of a closed loop where they mainly have complex macroeconomic effects.
-For example, the effect of increasing taxes via heightened transfer pricing scrutiny mostly moves production from one sector to another (e.g. from consumer tech to health and defense.)
-The policy and finance folks pulling the levers understand how that works, and often have their own complex set of motives.
It feels like if we just made these big companies pay what they should in taxes we'd be able to take some big steps towards health care, better schools, improving our crumbling infrastructure...
I disagree. Corporate taxes are a drag on the economy, and maximizing economic performance is probably the single most effective thing we can do to improve quality of life for everyone long term.
Actually, according to the IRS themselves in their yearly report to congress, they yet again have not been given the resources to go after big companies or rich individuals who are clearly skirting tax laws (and which will inevitably cause a serious court case because fuck you for trying to collect taxes from anyone with a lawyer) so they are basically relegated to sending mean letters to average and poor people for a few hundred dollars here and there, and they STILL collect more money than they are given in funding.
The IRS has been begging for the resources to go after big baddies for decades, but the Feds have been gun-shy at going after any large company since Enron.
The time has probably come for better global tax rules for multinational companies. It's tricky because you need multiple governments to agree but even so.
California has no limit on how far they can go back.
California has 4 years from the date you filed your return to issue an assessment. The only exceptions are for substantially underreported liability, which is considered fraud, or where a tax return was not filed. In such cases the statute of limitations is indefinite.
The part where you say "mostly W2" indicates that you had a number of non-W2 sources of income, which is probably where the underreporting arose. (A lot of people fail to properly report 1099 income. A lot of crypto traders fail to properly report crypto sales.)
I know you're trolling, but for any other readers who are curious, this is happening now because of increased funding at the IRS from the IRA that was passed in 2022, with part of the funding directed to performing audits on the highest earners. Prior to the IRA, the IRS didn't have the funds to fight Microsoft's lawyers on this issue. Now, they do.
> The effort, building off work following last August's IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade.
> "The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history," said IRS Commissioner Danny Werfel.
Please don't post unsubstantive and/or flamebait comments to HN. They're not what this site is for, and destroy what it is for. You can always make your substantive points without them, so please do that instead.
Grabbing dodged taxes from corporations is somewhat arbitrary, in that it doesn’t happen because republicans keep defunding the IRS, which is a major issue because nabbing tax dodging corporations has a massive return on investment.
If Microsoft is getting busted, it’s not arbitrary. They just dodged their taxes poorly.
As an AnCap, I believe that involuntary taxation is theft, however, I also believe that each individual must focus on their own benefit. I also believe that these large corporations were largely built up and propped up by non-trivial amounts of public money and other forms of government help to begin with.
As I don't own any Microsoft stock and I don't use their products and I stand to slightly benefit (in my career) from them having less money, I don't have any moral issues with this SEC filing.
I'll settle for companies actually paying taxes and getting punished for trying to get away with convoluted loopholes and the tax-free state/country scams.
I guess I'd take it, it's just going to sit in my bank. With 28billion, idk build a train or something, or place fiber, staff the borders better, build someone more telescopes
Yank the ladder up? Are you a cryptocurrency / superstonk / Wall Street Bets poster or something? The SEC should be going after scams and cults as well as corporate tax, it's a false dichotomy you're proposing.
Then I'm not sure what you're worried about, if it really isn't a cult as you imply. Either way, I don't understand your position on the matter, are you personally affected by the SEC going after cryptocurrency scams and WSB style stock traders?
With reference to cults, I was referring to meme stocks like GME, BBBY etc, not cryptocurrency. But just because something fraudulent happens on a computer network does not mean the SEC should not prosecute it. Fraud is still fraud regardless of where it happens.
> Not reflected in the proposed adjustments are taxes paid by Microsoft under the Tax Cuts and Jobs Act (TCJA), which could decrease the final tax owed under the audit by up to $10 billion.
So even by Microsoft's own admission they owe around $20B (instead of $30B) which they "forgot" to pay.
I 100% believe that it was a good faith mistake, and it still is.
Wonder why the stock hasn't taken a huge hit after the news. $28.9bln sounds like a lot. Maybe investors think MS will find a way to reduce the amount or pull of an extremely long term repayment plan?
>As of September 30, 2023, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.
Maybe it's because they won't face the music for at least a year.
> Wonder why the stock hasn't taken a huge hit after the news. $28.9bln sounds like a lot. Maybe investors think MS will find a way to reduce the amount or pull of an extremely long term repayment plan?
It’s very simple, the market doesn’t expect that MSFT will have to pay $28.9B in back taxes.
The back taxes add up to about 1.2% of Microsoft's current market cap, and it looks like the stock is down roughly 0.6% in after-hours trading. So I guess the market collectively estimates MS will end up owing about half of that amount.
Or, the number is only slightly higher than investors inspected. I assume this isn't the first news of this issue with the SEC and news like this was already priced-in to the stock.
Even if it is the first news of this particular issue, it doesn't surprise anyone when one of these big corps is hit with a big fine.
The announcement of back taxed for the years 2004-2013 at least places an upper bound on those past years. So this means that Microsoft investors now only have to worry about accounting failures over the years 2014-present! Less uncertainty = good news!
Partly (or maybe totally) because the 28.9 billion number is essentially the opening number in a negotiation (and there is even a chance the the figure is completely wrong and nothing additional is owed) and there is basically 0% chance MS ends up paying $28.9 billion.
In this case Microsoft is saying that some amount of their IP was developed by their overseas subsidiary and thus doesn't need to be included in the transfer pricing calculation, so in their process of making up imaginary amounts of money to charge themselves for their own products they also need to deduct that. If e.g. most of the Windows networking stack was created in Germany they need to figure out what percentage of the value of the overall Windows IP is added by the ability to connect to the internet.
Understandably, it's possible for reasonable observers to disagree on the values chosen here, this is not a case of black and white corporate misconduct (tax issues essentially never are).