Microsoft disclosed in an 8-K filing on Wednesday it has received a series of Notices of Proposed Adjustment (NOPAs) from the Internal Revenue Service (IRS), demanding back tax payments worth $28.9 billion "plus penalties and interest."
The disagreement revolves around how the company's profits were distributed across different countries and jurisdictions between 2004 to 2013.
"This is commonly referred to as transfer pricing and the IRS has established regulations that allow companies to use a specific arrangement for transfer pricing, called cost-sharing," Daniel Goff, Microsoft's Corporate Vice President, explained in a blog post.
Intriguingly, the tech giant pointed out that the proposed IRS adjustments overlook nearly $10 billion in taxes that the company has already paid, and will pursue an appeal within the IRS.
"We believe we have always followed the IRS's rules and paid the taxes we owe in the U.S. and around the world," Goff added.
This course of action is expected to span several years. As of September 30, the company assured the IRS it maintains adequate allowances for income tax contingencies.
Microsoft’s Year of Legal Battles So Far
Microsoft has grappled with a series of legal challenges throughout 2023, encompassing privacy matters and strategic acquisitions.
Ever since the tech giant expressed interest in acquiring Activision Blizzard in early 2022, several regulators stood in its way, leading it to have long-standing negotiations with regulators such as the US Federal Trade Commission (FTC) and the British Competition and Markets Authority (CMA).
It was only last month when the tech giant finally received the go-signal from the British market regulator regarding its $75 billion acquisition after it had revised the deal to address their worries over the protection and innovation of cloud gaming.
The deal is expected to close on October 13.
Meanwhile, Microsoft and its partner OpenAI were sued in June for $3 billion for unlawfully collecting and feeding personal data "from millions of unsuspecting consumers worldwide."
Edited by Nikola Djuric