Microsoft NZ settles tax dispute with 'confidential' $25m payment

Monday, 2 December 2019

A line in Microsoft NZ's accounts reveals it has paid a $24,748,658 tax 'adjustment'.

Inland Revenue has chalked up a win in its battle to tighten the tax practices of multinationals.

Microsoft New Zealand has paid just under $25 million in back taxes to settle a dispute with the tax department.

But it appears that neither the causes nor the terms of the deal will be open to scrutiny from anyone outside Inland Revenue.

Microsoft NZ said in its annual accounts that it had faced a 'tax adjustment' of $24.7m for business it conducted before June last year.

* IRD admits it was wrong to withhold submissions on multinational tax reforms

* Microsoft NZ re-homed in Bermuda after heat turned on Luxembourg**

The company revealed last year that it was being audited by Inland Revenue over its transfer pricing practices, which relate to the fees it pays to other Microsoft companies for services they supply to the subsidiary.

Multinationals can potentially under-report profits and underpay taxes in countries such as New Zealand by charging too high a price for such internal transactions.

Microsoft NZ said in its accounts that its dispute with Inland Revenue had now been resolved but it could not provide further information about the agreement.

'There are no remaining transfer pricing matters in dispute between the company and Inland Revenue,' it said.

Due to secrecy provisions, it will need to taken on faith that Inland Revenue got the best deal settling a dispute with Microsoft.

Inland Revenue has broad discretion to enter into secret settlements without oversight from the public or politicians.

It is legally prevented from discussing the tax affairs of both businesses and individuals unless it decides that one of a number of carve-outs apply that warrant disclose.

It has tended to take a narrow view of what might warrant disclose.

Microsoft's accounts appear to suggest Inland Revenue has gone a step further in maintaining secrecy by also requiring Microsoft NZ to keep the terms of their settlement confidential.

However, the $24.7m size of the settlement could be inferred from a line in Microsoft's accounts.

Inland Revenue spokeswoman Gay Cavill said it could not comment on whether Inland Revenue had imposed a secrecy condition on Microsoft as that would involve 'confirming or denying' a settlement had been entered into with the company, which it could not do because that was confidential.

The question of whether tax secrecy laws were appropriate was a legislative matter and hence one for the Government, and not the department, she said.

The tax secrecy provisions of the Tax Administration Act have been amended by the current Government, but had essentially remained the same, she noted.

Revenue Minister Stuart Nash has been approached for comment.

Microsoft transferred the ownership of its New Zealand subsidiary from the United States to the tiny European state of Luxembourg in 2014, denying at the time that was for tax reasons.

It re-homed the business to its subsidiary in Bermuda in 2017 saying that change was 'part of standard corporate restructuring'.