Microsoft is facing an extra €52.5m added to its tax bill in France – its third tax reassessment in five years and its biggest during the period.
The reassessment relates to its 2007, 2008 and 2009 financial years, according to French TV channel BFM TV. It comes as a result of a tax audit in 2010 that looked into the fees paid by the local branch of the company to its main shareholder, Microsoft Ireland (Microsoft's European headquarters and main centre of business in the continent are located in Dublin).
In France, Microsoft acts as a 'commission agent' for Microsoft Ireland and gets a fee on every deal signed between the company and French customers. The French income tax department has looked into the amount of those fees, and now believes Microsoft owes an additional €52.5m in tax, BFM reports.
Whether Microsoft will have to pay the extra amount remains to be seen: the company has faced similar reassessments before and in 2005 lodged a complaint with France's tax commission (Commission Nationale des Impôts Directs) that saw the reassessment overturned. Microsoft disputes the current reassessment and has again lodged a complaint. (Microsoft did not immediately respond to request for comment.)
Having local subsidiaries that act as commission agents for a main shareholder based in a country with lower tax levels is one of the well-known tax optimisation practices used by large online companies.
Though legal, such practices also recently caught the eye of the OECD (Organisation for Economic Co-operation and Development), which called for better international co-operation in order to address taxation "base erosion and profit shifting".
One answer to the issue could at least partially come from a proposed European directive (PDF) for a Common Consolidate Corporate Tax Base (CCTB) – a way to set up a common tax base for companies that operate across a number of EU countries. Proposed by the European Commission back in March 2011, the directive "aims to tackle some major fiscal impediments to growth in the Single Market. In the absence of common corporate tax rules, the interaction of national tax systems often leads to over-taxation and double taxation, businesses are facing heavy administrative burdens and high tax compliance costs. This situation creates disincentives for investment in the EU." But such measures move slowly: the proposed directive is the result of discussions started back in 2003.