Microsoft fears the taxman

Software giant Microsoft has warned that if a government review of its US tax obligations do not go its way it could significantly affect its financial statements.

The Internal Revenue Service is looking at Ballmer’s books and is a little concerned how Vole has used transfer pricing, and booked prices and sales between subsidiaries. The idea has been to report earnings in lower-tax jurisdictions.

At the moment US companies have to pay a 35 percent tax on profits and big companies often book profits overseas to enjoy lower tax rates.

However there are now calls in the US for a simplified tax code with a lower corporate tax rate and fewer loopholes. US President Barack Obama’s administration is also understood to be negotiating a scheme to let profits parked offshore be brought home at very low tax rates, to boost investment and jobs.

Vole has $44.8 billion of non-US earnings “reinvested” abroad. This means that the US taxman is missing out on $14.2 billion.

Microsoft has been shifting cash overseas more lately. At the end of 2010 it had $29.5 billion permanently reinvested overseas.

Yesterday Microsoft said the IRS had issued a Revenue Agent’s Report after looking at the 2004-2006 tax years, but Microsoft was appealing several things cited in the report.

It did not say how much the taxman wanted.

According to Reuters, Vole produces and distributes products and services through regional operations centres in Ireland, Singapore and Puerto Rico, which have lower income tax rates.