A compliance report launched by Microsoft this week offered a uncommon look into how tech giants shift earnings out of the international locations the place they’ve many staff and important gross sales and into low-tax havens that assist them lower their tax payments by billions of {dollars}.
Microsoft was most definitely the primary main U.S. expertise firm to make a so-called nation by nation report of its funds to adjust to a brand new European Union directive. Like different huge corporations, Microsoft makes use of transactions between subsidiaries to shift earnings round to cut back its tax invoice. The report revealed a constant sample: excessive returns in low-tax jurisdictions and slim margins in higher-tax ones.
Microsoft’s report detailed the corporate’s gross sales, tax payments and staff in dozens of nations, principally in Europe, for its fiscal 12 months that resulted in June 2025. The report confirmed the generally absurd outcomes.
Microsoft mentioned it had generated virtually 40% of its pretax earnings in tax-friendly Eire, the place it employed about 3% of its international workforce. In higher-tax Germany, the most important economic system in Europe, Microsoft earned barely half of 1% of its international earnings, it mentioned. Excluding Eire, the corporate mentioned, it generated lower than 2% of its worldwide pretax earnings in Europe.
Microsoft mentioned in a weblog put up accompanying the report that it adopted all of the legal guidelines in each jurisdiction the place it operated, and that the reporting requirements created some inconsistencies amongst international locations.
“Microsoft is dedicated to a tax construction that displays the place our folks work, the place we make investments, and the place capabilities, belongings, and dangers happen,” wrote Jeff Bullwinkel, Microsoft’s high lawyer in Europe.
The IRS is difficult profit-shifting transactions utilized by Microsoft, and is in search of again taxes of almost $29 billion. The corporate has mentioned it disagrees with the IRS and mentioned in a securities submitting that it “will vigorously contest” the proposed tax payments.
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Within the wake of the worldwide monetary disaster greater than a decade in the past, European international locations slashing fundamental providers skilled their sights on tax dodges employed by huge corporations, equivalent to Google, Apple, Starbucks, Amazon and Fb.
The European Parliament proposed the nation by nation reviews to extend “the transparency on the place they pay their taxes,” mentioned Iban García del Blanco of Spain, one of many directive’s lead negotiators. The reviews would give the general public perception into corporations’ financial exercise — which could be fairly completely different from the place they declare to earn their earnings for tax functions. The European Parliament handed the directive in 2021, and it’s now taking impact.
Microsoft’s report confirmed that, regardless of the efforts to crack down on tax havens, corporations are capable of “shift their earnings to low-tax jurisdictions with no corresponding shift in actual exercise,” mentioned Reuven Avi-Yonah, a tax legislation professor on the College of Michigan.
For years, Microsoft has disclosed that it booked a disproportionate quantity of earnings in Eire, whose porous tax legal guidelines have permitted huge corporations — together with Google, Fb and PepsiCo — to keep away from billions of {dollars} of taxes by transferring earnings into island havens like Bermuda and Grand Cayman.
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For its 2025 fiscal 12 months, Microsoft reported revenue margins of 24% in Eire, the place it paid taxes at a price of simply over 14%. In Luxembourg, Microsoft claimed revenue margins of 142% and a tax price of simply 3%. The corporate mentioned it had $283 million in pretax earnings and solely 34 staff within the tiny nation.
However in a number of of Microsoft’s greatest markets — the place tax charges exceed 25% — it reported tiny revenue margins. In Germany, France and Italy, the corporate claimed single-digit revenue margins, generally barely 5%.
The report nonetheless gave solely a partial image, as a result of it lumped in america with different international locations.
Microsoft mentioned it had constructed its presence in Eire over greater than 4 many years, and it has grown into the corporate’s major hub within the area. It employs roughly 6,600 folks there, greater than anyplace else in Europe.
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For 13 years, worldwide regulators have tried to crack down on how huge corporations shift earnings into tax havens, and greater than 100 international locations have handed legal guidelines making a minimal company earnings tax. However the Trump administration struck an settlement this 12 months with the Group for Financial Cooperation and Improvement that successfully exempts U.S. corporations from a lot of that crackdown.
Consequently, U.S. corporations final 12 months prevented at the very least $40 billion in taxes from parking earnings in havens, The New York Instances discovered.
Bullwinkel mentioned Microsoft’s capital expenditures in knowledge facilities, its company workforces and its work by native companions have been additionally key investments in native economies. “Tax is one vital measure of contribution, however it isn’t the one one,” he wrote.