Microsoft Corp. will be paying around $140 million to China in back taxes. The cross-border tax evasion case is the country's first, as enterprise regulators are putting the pressure on U.S. businesses in China.
According to a report by the State-owned Xinhua on Sunday, one unnamed U.S. corporation is required to pay 840 million yuan ($137 million) in interest and unpaid taxes plus another 100 million yuan each year for additional taxes in the future.
Xinhua's report only mentions the company by the letter "M," which is the first letter of the firm's name, and that the firm is one of the 500 largest companies in the world. The report added that the firm involved also set up an overseas subsidiary in Beijing in 1995.
Microsoft Corp., one of the biggest and most famous tech firms in the world, fits the description perfectly.
However, the Windows OS maker did not confirm the allegation, but the firm also did not dismiss the idea that they are the company involved.
"China receives tax revenue from Microsoft consistent with the terms of the agreed advanced pricing agreement," said a Microsoft Corp. spokesman through an email.
According to the spokesman, the advanced pricing agreement was made between tax officials of the U.S. and China in 2012.
In Microsoft's 2014 fiscal report, the firm's total effective tax rate was only 21 percent, which is under the 35-percent rate standard for U.S. corporations. This is because Microsoft transfers its profits via "foreign national operations centers" in Puerto Rico, Singapore and Ireland.
According to Xinhua's report, the "M" company reported financial losses in China for six years for more than 2 billion yuan, while other U.S. firms were enjoying stable and increasing revenues. This led China's tax authorities to doubt Microsoft's financial reports.
Xinhua said that the U.S. international firm admitted that it evaded paying tax, but the mainland subsidiary agreed to pay its back taxes to the Chinese government.
Besides the tax evasion case, Microsoft is also under the crosshairs of anti-trust watchdogs.