Tax authority pursuing Microsoft for 5.8 billion kroner

Microsoft allegedly sold on a Danish business at far below market rate to Irish tax haven in order to avoid large tax bill

Microsoft is being pursued by the tax authority, Skat, for 5.8 billion kroner according to public broadcaster DR.

The sum makes the case the largest Skat has ever pursued and revolves around the American software giant’s 10.8 billion kroner purchase of Danish company Navision in 2002.

Microsoft bought Navision for its highly successful supply chain management programme, but in the process Skat alleges that Microsoft cheated them out of billions of kroner.

Microsoft’s daughter company Microsoft Danmark bought Navision and renamed it Microsoft Business Solutions. The Danish company then sold the rights to Microsoft Ireland, which is owned by companies in Bermuda and the British Virgin Islands – two locations that are known tax havens.

According to tax legislation, when daughter companies buy and sell goods from each other, they must abide by so-called ‘transfer-pricing’ rules that force them to pay market price for the products they are buying and selling.

Skat alleges, however, that Microsoft Ireland bought the rights for far below market value from Microsoft Danmark, meaning that the company would have to pay far less tax to the Danish government.

The Danish tax authorities are now pursuing Microsoft for five billion kroner in lost revenue as well as 0.8 billion in interest for the programme, which is now called Dynamics NAV and is being developed in Microsoft's 600-person Danish headquarters in Vedbæk.

According to DR, the different versions of the programme generate about 10 billion kroner of income annually for Microsoft. The software company is co-operating with Skat and the American tax authority, the Internal Revenue Service, to find a resolution over the missing billions.

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