How Microsoft legally avoided tens of millions in UK taxes

Microsoft has managed to avoid paying Her Majesty's due on Ł1.7 billion per year in UK revenues by exploiting a tax loophole that allows the company to funnel money through Luxembourg. Microsoft is simply the latest in a series of major corporations caught using the loophole. Microsoft says the loophole is legal.

LONDON, ENGLAND (Catholic Online) - According to the Sunday Times, Microsoft has been funneling cash from the sales of Windows 8 out of the UK and through a series of transfers that lands the money in the Caribbean, beyond the reach of Her Majesty's Revenue and Customs agents.

The journey starts when someone in the UK purchases a Windows software product. The money is paid into an account in Luxembourg from whence it is transferred to Microsoft's European headquarters in Ireland. Ireland has about half the tax rate as the UK.

From Ireland, the money for dividends is sent along to Bermuda.

The past year along, her Majesty has been deprived of Ł159 million in revenues. And it's all apparently quite legal, for tax avoidance isn't the same as tax evasion.

However, this has raised the ire of many in the UK who believe the company should pay its share of revenues to Her Majesty, saying the money is enough to build a hospital or to help a great many people in need.

Microsoft isn't the first company to perform such gymnastics with their revenues. Amazon, Apple, Google, and even Starbucks have come under scrutiny for doing much the same thing.

Earlier this week, Starbucks, bowed by public pressure, agreed to pay the UK Ł20 million over the next two years.

For its part, Microsoft insists they have paid all applicable taxes and their methods are entirely legal. Microsoft does pay taxes in the UK, when the taxes are applicable. Indeed, if Microsoft is merely avoiding taxes, then a case can be made they are diligently doing what's required under their fiduciary responsibility as a corporation, which is to maximize shareholder profits.

As long as it's legal, of course.

There is no word yet on what Microsoft or Her Majesty plans to do, if anything, to resolve the current controversy.

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