Microsoft fingered as company forced to pay $136M in back taxes in China

Chinese state press said an unnamed foreign company matching Microsoft's description had been forced to pay 840 million yuan in back taxes.

Microsoft may be have been targeted in a Chinese government crackdown on tax evasion, at a time when the company is already facing an anti-monopoly probe related to Windows and Microsoft Office sales in the country.

China's state-controlled Xinhua News Agency said on Sunday that an unnamed international company was forced to pay 840 million yuan (US$136 million) in back taxes, as part of the crackdown.

The Xinhua article simply referred to it as the "M company," describing it as a top 500 global firm headquartered in the U.S. that in 1995 set up a wholly owned foreign subsidiary in Beijing. The details match Microsoft's own background, and no other company obviously fits the bill.

Xinhua added, that despite the company's strengths, its subsidiary in China had not been not making a profit, and posted a loss of over $2 billion during a six-year period.

Chinese authorities, however, began scrutinizing the company after it was found that other firms in the same industry were making profit margins of 12 percent.

The investigation later found that the company's massive loses stemmed not from weak product sales, but because half of the profits made were being paid to the parent company in the U.S, the Xinhua article said.

No time frame was given on when the events took place, but following a "large number of arguments," the company agreed to pay the 840 million yuan in back taxes, and to also pay 100 million yuan in additional taxes every year, the report said.

Although other media outlets including Reuters were categoric in their identification of Microsoft as the company concerned, on Wednesday Microsoft declined to confirm or deny that it was the company named in the Xinhua report.

However, Microsoft said in 2012 both the U.S. and China agreed to a "bilateral advanced pricing agreement" related to its operations in the country.

"The agreement is an acknowledgement by both countries that Microsoft's profits are subject to the appropriate tax in China," the company said in an email.

Earlier this year, Microsoft became the target of a Chinese anti-monopoly investigation over the way it distributes its software in the country. The investigation is still ongoing, but resulted in several government-sponsored raids on Microsoft offices in the country to find information.

China has been a major market for the company, but its also a country rife with piracy. For years, Microsoft has been trying to combat the problem, by encouraging users to buy licensed software, and also filing lawsuits against alleged offenders.

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Michael Kan

IDG News Service
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