Tech giant, Microsoft Incorporation has been charged with an additional $28.9bn (£23.5bn) in back taxes for the past nine years, even as the organization has kicked and vows to contest the US tax authority’s ruling which covers back taxes for the years 2004 to 2013.
The Internal Revenue Service has been auditing how the firm allocates profits among countries and jurisdictions.
But Microsoft said “the issues raised by the IRS are relevant to the past but not to our current practices”.
There have long been concerns that the biggest corporations do not pay enough tax in developed nations.
The case puts further focus on the international tax practices of major multinationals that have been accused in recent years of shifting revenue to lower tax jurisdictions in an effort to avoid higher taxes in their major markets.
“We disagree with the proposed adjustments and will vigorously contest the (demand) through the IRS’s administrative appeals office and, if necessary, judicial proceedings,” the company said in its filing to the US markets authority.
How Tech giants such as Microsoft, others report lower profits in high-tax countries and higher profits in lower-tax jurisdictions to minimise tax burden
In a blog post, Microsoft said the issue with the IRS was with its transferring of revenue across international jurisdictions during the period.
The practice, called cost-sharing, is used by “many large multinationals…because it reflects the global nature of their business,” the company said.
Tech giants have been criticised for reporting lower profits in high-tax countries and higher profits in lower-tax jurisdictions to minimise their tax burden.
In a securities filing, Microsoft said the IRS was seeking an additional tax payment of $28.9bn plus penalties and interest.
The company said it had “always followed the IRS’s rules and paid the taxes we owe in the US and around the world”.
It said it believed that any taxes owed after the audit would be reduced by up to $10bn based on tax laws passed by former President Donald Trump.
Other American tech firms such as Amazon and Facebook have also faced similar calls to pay more taxes.
This year, Microsoft has also come under scrutiny from other US authorities.
In June, it agreed to pay $20m to the Federal Trade Commission (FTC) after the company was found to have illegally collected data on children who had started Xbox accounts.
But the firm may soon have a victory over its plan to buy Activision Blizzard, which makes Call of Duty, for $68.7bn as the deal is expected to be finalised soon.
Reached by AFP, the IRS said it was against US law for it to either confirm or deny an ongoing tax case.
Microsoft said that the appeal process with the IRS would take years and if it failed, the company would fight the claim in the courts.
The Windows maker said the demand emerged out of a decade-long discussion with the IRS “about how we allocated our income and expenses for tax years beginning as far back as 2004.”
“We have changed our corporate structure and practices since the years covered by the audit, and as a result, the issues raised by the IRS are relevant to the past but not to our current practices,” it said.
Microsoft added that “since 2004, we have paid over $67 billion in taxes to the US.”
The accounting practices of US big tech companies have long posed a problem for authorities.
Governments have accused companies such as Apple, Amazon or Microsoft of shifting revenue through low or zero tax jurisdictions in order to escape taxation in their main markets and maximize profits.
In the EU, authorities in 2016 ordered Apple to pay 13 billion euros ($14 billion) in back taxes over similar accounting practices, but Brussels lost an appeal to Apple and is awaiting the outcome of a further appeal.