Denmark seeks $1bn from Microsoft in tax case

The Danish tax authority has filed a 5.9 Danish crown (US$1 billion) tax claim against Microsoft, alleging it did not pay full its fair share of corporate taxes in the sale of software company Navision in 2002 to an Irish Microsoft subsidiary.

Microsoft Corporation acquired Navision in a stock-and-cash deal for about $1.3 billion, and then quickly transferred assets to Ireland, thus avoiding Denmark’s notoriously high corporate taxes.

The Danish government suspects Microsoft sold the valuable assets well below market value, and is looking for compensation on the sale, as well as 11 years of interest.

Tax rates in Denmark are 25%, and in Ireland can be as low as 12.5%, depending on the type of business. In comparison, the US corporate tax rate is 40% and in tax havens such as Bermuda, the Bahamas, and the British Virgin Islands, corporations pay no tax at all, according to KPMG’s 2013 tax rate compilation.

Denmark’s government plans to lower its corporate tax rate to 22% to improve competitiveness and boost recession recovery.

Corporations, mostly US-based, have come under scrutiny for their international tax loopholes and avoidance, Apple and Google being at the forefront. The Danish-Microsoft debacle is one of the first cases in which a government is attempting to retrieve lost tax revenue.

The dispute is likely to be settled outside of court.