SECURITIES AND EXCHANGE COMMISSION
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OF THE SECURITIES EXCHANGE ACT OF 1934
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Item 8.01. Other Information
On October 11, 2023, Microsoft Corporation announced the receipt of Notices of Proposed Adjustment (“NOPAs”) from the Internal Revenue Service (the “IRS”) for the tax years 2004 to 2013. The NOPAs were received on September 26, 2023. The primary issues in the NOPAs relate to intercompany transfer pricing. In the NOPAs, the IRS is seeking an additional tax payment of $28.9 billion plus penalties and interest. As of September 30, 2023, we believe our allowances for income tax contingencies are adequate. We disagree with the proposed adjustments and will vigorously contest the NOPAs through the IRS’s administrative appeals office and, if necessary, judicial proceedings. We do not expect a final resolution of these issues in the next 12 months. Based on the information currently available, we do not anticipate a significant increase or decrease to our tax contingencies for these issues within the next 12 months.
This Form 8-K contains forward-looking statements, which are any predictions, projections or other statements about future events based on current expectations and assumptions that are subject to risks and uncertainties, which are described in our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements, and Microsoft undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.
Item 9.01. Financial Statements and Exhibits
|99.1||Microsoft on the Issues Blog|
|104||Cover Page Interactive Data File (embedded within the Inline XBRL document)|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|Date: October 11, 2023|
|Alice L. Jolla|
|Corporate Vice President and Chief Accounting|
Microsoft on the Issues Blog An update on our IRS tax audit
By Daniel Goff, Corporate Vice President, Worldwide Tax and Customs
Today, were sharing an update about our ongoing audit with the U.S. Internal Revenue Service (IRS), including background and context for this specific case and what we generally expect next.
Background on the IRS audit
For nearly a decade, as we have previously disclosed in our financial statements, Microsoft has been working with the IRS to address questions about how we allocated our income and expenses for tax years beginning as far back as 2004. We have changed our corporate structure and practices since the years covered by the audit, and as a result, the issues raised by the IRS are relevant to the past but not to our current practices.
The IRS recently sent us a series of Notices of Proposed Adjustment (NOPAs), sharing with us for the first time detailed information and explanations of their views about the issues in question. This marks the end of the audit covering 2004 to 2013, and the beginning of a new process to resolve these decades-old issues.
The IRS says Microsoft owes an additional $28.9 billion in tax for 2004 to 2013, plus penalties and interest. The IRSs proposed adjustments do not represent a final determination. Not reflected in the proposed adjustments are taxes paid by Microsoft under the Tax Cuts and Jobs Act (TCJA), which could decrease the final tax owed under the audit by up to $10 billion.
Microsoft disagrees with these proposed adjustments and will pursue an appeal within the IRS, a process expected to take several years. We believe we have always followed the IRSs rules and paid the taxes we owe in the U.S. and around the world. Microsoft historically has been one of the top U.S. corporate income taxpayers. Since 2004, we have paid over $67 billion in taxes to the U.S.
What the dispute is about
The main disagreement is the way Microsoft allocated profits during this time period among countries and jurisdictions. 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.
Many large multinationals use cost-sharing because it reflects the global nature of their business. Because our subsidiaries shared in the costs of developing certain intellectual property, under those IRS cost-sharing regulations, the subsidiaries were also entitled to the related profits.
Next steps: Proposed adjustments and IRS Appeals
We strongly believe we have acted in accordance with IRS rules and regulations and that our position is supported by case law. We welcome the IRSs conclusion of its audit phase which will provide us with the opportunity to work through these issues at IRS Appeals, a separate division of the IRS charged with resolving tax disputes.
It is important to note that the IRS Appeals process will take several years to complete, and if we are unable to come to a direct agreement with the IRS, Microsoft will then have an opportunity to contest any unresolved issues through the courts.
We will continue to work with the IRS and hope to reach a mutual resolution to this issue over the coming years. We will also continue to share updates on significant developments through our public quarterly and annual reports and financial statements, as we have through this entire process. As of September 30, 2023, we believe our allowances for income tax contingencies are adequate.