Shares of Microsoft (NASDAQ:MSFT) dipped fractionally after hours Wednesday (-0.4%) after the company said the IRS claims it owes $28.9 billion in back taxes, plus penalties and interest.
The potential taxes in question relate to the periods from 2004 to 2013. Since that time the company has changed its corporate structure and practices. The company states that the concerns brought up by the IRS pertain to historical matters and are not applicable to its present-day operations.
Microsoft disputes the proposed tax adjustments and plans to appeal through the IRS, a process lasting several years. The company said it adheres to IRS rules and is in full tax compliance in the U.S. and globally, with a record of over $67 billion in U.S. tax payments since 2004.
The primary dispute centers on Microsoft's profit allocation across regions, particularly regarding transfer pricing and IRS-approved cost-sharing regulations. Microsoft explains that many multinational companies adopt cost-sharing to align with their global operations. When subsidiaries invested in developing intellectual property, IRS regulations entitled them to corresponding profits.
The company stated it will continue to work with the IRS and hopes to reach a mutual resolution to this issue over the coming years. As of the latest quarter, the company believes its allowances for income tax contingencies are adequate.