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Microsoft NZ pays $24.7M after major tax settlement with IRD

Microsoft NZ pays $24.7M after major tax settlement with IRD

Large payment relates to back years in confidential settlement

Microsoft has made a multi-year tax settlement with New Zealand's Inland Revenue Department.

Microsoft has made a multi-year tax settlement with New Zealand's Inland Revenue Department.

Credit: ID 141271826 © Topdeq | Dreamstime.com

Microsoft New Zealand has settled a long-running tax investigation with Inland Revenue over international transfer pricing.

The settlement has seen Microsoft adjust multiple back years of tax to a total of $24.7 million in IRD's favour.

Further details of the settlement, however, have not been disclosed.

A note in Microsoft's New Zealand accounts to 30 June, 2019, say the terms are of the settlement are confidential and no more transfer pricing matters remain to be resolved. 

However, something else is evident in the accounts - a huge increase year-on-year in the amount of taxable income Microsoft NZ has declared. 

This could potentially indicate an unwinding in the structure of Microsoft NZ's transactions with overseas entities that make more income liable to tax in New Zealand.

Revenues from the sale of goods and services increased from $182.7 million to $462.3 million. Expenses also increased resulting in taxable income of $28.8 million compared with $21.3 million in 2019.

Microsoft is known to have in the past settled many of its local sales in Singapore, receiving something akin to a margin or fee or commission as payment for its local sales and marketing services.

In July, Cisco Systems NZ similarly settled a dispute with IRD to the tune of $4.7 million.

Microsoft's Australian business settled a similar dispute in 2017 on the same day the company had to appear before a public hearing into corporate tax avoidance. 

That settlement was later revealed to be a A$39 million payment covering the period 1 July 2010 through 30 June 2013.

Microsoft NZ's bottom line was driven into the red as a result of its settlement. The company recorded a $3.7 million loss for the year compared with a $16.2 million profit in 2018.


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