Per China’s Xinhua official news agency, software developer Microsoft Corporation (MSFT) will have to shell out around $140 million as settlement charges to the Chinese authorities for evading taxes. It may also be required to pay an additional 100 million yuan in taxes next year.
However, the reports do not specifically mention Microsoft but provide a description about the company. Apparently, the company agreed to pay the amount after investigations by China's tax authority, which said that tax evasion resulted from the transfer of huge profits from its Chinese subsidiary to the U. Microsoft neither confirmed nor denied the reports.
Meanwhile in the U.S., the Internal Revenue Service is currently carrying out an audit of the transfer pricing transactions between Microsoft and its offshore units from 2004 to 2009. Transfer pricing is the price at which units of a company transfer goods and services between each other. It is a system that is at times manipulated by large companies to reduce their tax burden.
If the reports turn out to be true, in our opinion, the probes will affect Microsoft’s reputation and increase the risk of similar proceedings by other nations. In addition, the penalty charges will increase tax outlay for the company.
Microsoft reported encouraging first quarter 2015 results with earnings of 54 cents exceeding the Zacks Consensus Estimate of 49 cents. Revenues of $23.20 billion were up 0.8% sequentially and 25.2% from last year, better than the Zacks Consensus Estimate of $21.59 billion.
Microsoft shares carry a Zacks Rank #3 (Hold). Better-ranked technology stocks to consider at this time include Advent Software, Inc. (ADVS) and Aspen Technology, Inc. (AZPN), both sporting a Zacks Rank #1 (Strong Buy), and Blackbaud Inc. (BLKB) holding a Zacks Rank #2 (Buy).
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