see SEC Letter to M$
This is the tail end of an exchange of letters which related to the annual report of the previous fiscal year. Some general comments and a discussion of dealings with embargoed countries like Syria included this gem:
“In future filings, we will expand our results of operations discussion to ensure that our discussion clearly identifies factors, including results within our major geographic areas and the segments impacted, which contribute to significant variances in income before taxes.”
That suggests we should see more detailed information about region/segment of M$’s business on 19-4-2012 when the next 10-Q is expected.
“Microsoft Fiscal Year 2012 Third Quarter Earnings Conference Call April 19, 2012; 2:30 PM – PT
Peter Klein, CFO”
I will be interested to see how much of M$’s assets are now held outside USA, avoiding US taxation (and stockholder dividends)… There has been friction between M$ and foreign governments over hiding income as well. Perhaps like Al Capone, M$ will receive justice over taxes rather than anti-trust violation.
From the last 10-Q:
“NOTE 12 INCOME TAXES
Our effective tax rates were approximately 20% and 22% for the three months ended December 31, 2011 and 2010, respectively, and 20% and 23% for the six months ended December 31, 2011 and 2010, respectively. Our effective tax rate was lower than the U.S. federal statutory rate and prior year effective rates primarily due to a higher mix of earnings taxed at lower rates in foreign jurisdictions resulting from producing and distributing our products and services through our foreign regional operations centers in Ireland, Singapore, and Puerto Rico, which are subject to lower income tax rates.
Tax contingencies and other tax liabilities were $7.7 billion and $7.4 billion as of December 31, 2011 and June 30, 2011, respectively, and are included in other long-term liabilities. While we settled a portion of the I.R.S. audit for tax years 2004 to 2006 during the third quarter of fiscal year 2011, we remain under audit for these years. During the fourth quarter of fiscal year 2011, the I.R.S. completed its examination and issued a Revenue Agentâ€™s Report (â€œRARâ€) for the remaining unresolved items. We do not agree with the adjustments in the RAR, and we have filed a protest to initiate the administrative appeals process. The proposed adjustments are primarily related to transfer pricing and could have a significant impact on our financial statements if not resolved favorably. We do not believe it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months, as we do not believe the appeals process will be concluded within the next 12 months. We also continue to be subject to examination by the I.R.S. for tax years 2007 to 2011.
We are subject to income tax in many jurisdictions outside the U.S. Certain jurisdictions remain subject to examination for tax years 1996 to 2010, some of which are currently under audit by local tax authorities. The resolutions of these audits are not expected to be material to our financial statements.”
That should inspire confidence in shareholders. Depending on the outcome of an appeals process to prop up the bottom line is not good business. If the taxation contingency is $7billion for the audit of 2006, what could be the size of the contingency for all those other years?
You can see M$’s exchanges with the SEC here.