Denmark's treasury is claiming that Microsoft Corporation may owe up to 5.8 billion kroner—or approximately $1 billion—in unpaid taxes relating to its purchase of financial software vendor Navision in 2002.
Microsoft bought Navision in 2002 for $1.5 billion and made it a part of its Microsoft Business Solutions unit, with the product becoming Dynamics NAV under the Microsoft Dynamics division.
The company is in dispute with the Danish government over unpaid taxes dating back to that period, according to a recent Reuters article.
While Microsoft and the Danish treasury are not officially commenting on the matter, a source familiar with the dealings claims that the main issue is not about whether or not Microsoft is complying with Danish law. According to the source, taxes were in fact paid at the time but the Danish government is valuing the intellectual property of the deal differently. Specifically the Danish tax authorities want Microsoft to pay them a second time. The argument is that there was a premium over fair market price that was paid at the time. Microsoft’s acquisition of Navision was approved by 98 percent of Navision's Danish stockholders.
The source also noted that the sale of Navision assets in dispute is Microsoft corporate, and not Microsoft Ireland, as has been reported.
The Reuters article also stated that revenues from the software that Microsoft Dynamics sells is on the order of a billion dollars a year. That revenue has reportedly been routed through Ireland via a Microsoft subsidiary, which is in turned owned by companies in Bermuda and the British Virgin Islands.
The controversy comes at a time when U.S.-based multinational corporations such as Google, Amazon and Starbucks have come under scrutiny in Europe for not paying their fair share of taxes. Google reportedly uses tax strategies known as the "Double Irish with a Dutch Sandwich" to shift intellectual property and profits to low-tax countries such as Ireland. Transfers of intellectual property, especially by technology companies, are considered to be comparatively easy and advantageous from a tax standpoint since plant and equpment do not need to be physically relocated.