Skype buy was a Microsoft tax dodge

A financial analyst has said that Microsoft’s $8.5 billion buy of Skype is a tax dodge and the US taxpayer will end up paying for half the bill.

Larry Elkin, of Palisades Hudson, said that Microsoft’s agreement to buy Skype for $8.5 billion may turn out to be a bad bargain but it was corporate genius for Vole’s shy and retiring CEO Steve Ballmer.

Thanks to the US tax laws it was completely rational for Ballmer to spend a fortune acquiring a company that makes no cash.

Writing in his bog  , Elkin said that Ballmer was sitting on a pile of cash,much of it is overseas as a result of foreign sales.

When outfits have too much cash there is a lot of pressure to return it to shareholders in the form of dividends or share repurchases, or to spend it on expansion and corporate acquisitions.

However tax laws get in the way because if it brings any of the cash into US shores it gets hit by aa U.S. tax rate of 35 percent. Shareholders would only get 65 per cent of the dosh and see other taxes each up a lion’s share of the rest.

But if Vole bought Skype, which is incorporated in Luxembourg, the money invested to buy its stock is not considered bought back to the US no American taxes are due.

If Skype makes a killing Ballmer can continue to keep Skype’s foreign-generated profits overseas, deferring American taxes indefinitely. If it does not work then Ballmer can tell shareholders that they have not lost much because they would have had to pay the tax anyway.

Neither Google nor Facebook would have thought about paying that much for Skype because it does not have Ballmer’s cash problem.

Elkin does not blame Ballmer. He said that bizarre US tax laws make it possible for Ballmer to be extravagant using the taxpayer’s cash.

He said that the US made it irrational for Ballmer to invest his company’s stockpiled cash domestically, and rational for him to overpay for a corporation based abroad. A thoughtless tax policy has made a bad deal look good.