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IRD audits Microsoft NZ

NZN 17/01/2017 Jonathan Underhill

Microsoft New Zealand, the local unit of the world's biggest software company, is being audited by New Zealand's Inland Revenue Department over transfer pricing, which can be used by multinationals to minimise tax.

The transfer pricing audit covers Microsoft NZ's accounts for the years 2013 to 2015 and comes as the IRD widens its net to require all foreign-owned firms with annual turnover of more than $30 million to submit an annual basic compliance package which details group structure, financial statements and tax reconciliations.

The threshold was previously $60m in annual sales.

A Microsoft spokesman said the company is "currently working with the IRD to complete the transfer pricing audit of the company as required, there is nothing more we can share about that at this time".

He said Microsoft "complies with the law and we pay our taxes in New Zealand".

"We believe tax is an issue that should be addressed at the global level, but having said that, we abide by the laws in all jurisdictions in which we operate."

Microsoft NZ's immediate parent is based in Luxembourg.

Last year, IRD launched a number of audits of the tax arrangements of global technology firms and the NZ Herald reported at the time that an IRD briefing to Revenue Minister Michael Woodhouse said the audits were triggered by "anomalies" thrown up by close monitoring of multinationals.

Transfer pricing refers to the prices that divisions of a large company charge each other for goods and services and has been used by multinationals to shift profits to low-tax jurisdictions from countries with higher tax rates.

Australia is among nations planning to introduce a diverted profits tax, commonly known as the "Google tax". The Guardian reported that Australia's coalition government could impose a 40 per cent penalty on profits that are artificially diverted from Australia by multinationals.

Executives at Microsoft, Google and Apple were hauled before an Australian Senate inquiry in 2015 to explain why they should be able to divert earnings to lower-cost countries.

Microsoft New Zealand says in its 2016 financial statements, released this week, that its directors and their legal advisers "believe we have adequately assessed and provided for our tax positions. The ultimate outcome of the tax audit cannot be reliably estimated at this time".

An IRD spokesman said it was widely known that the IRD had focused on global technology companies in recent years and pointed to the Multinational Enterprise Compliance Focus Document, a guide that sets out the requirements of the nation's tax law.

Microsoft NZ had net profit of $8.1 million in 2013 after paying tax of about $3.9 million, on revenue of $78.5 million.

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