European inquiry into Microsoft likely to include Ireland

The European Commission's inquiry into Luxembourg's tax treatment of Microsoft looks set to involve some of the company's key Irish operations, company filings in the EU's smallest member-state indicate.

Microsoft Luxembourg Sarl, one of four Microsoft subsidiaries in the Duchy, is in turn a subsidiary of an Irish Microsoft company that has a €15 billion turnover. The Irish company received royalty payments of €368 million from the Luxembourg operation in its most recent financial year.

It was reported last week that the commission’s inquiries into the tax treatment of multinationals that may offend the union’s state aid rules are to include Microsoft in Luxembourg. It had already been reported that similar inquiries were taking place into the treatment of Apple in Ireland, Starbucks in the Netherlands and Fiat in Luxembourg.

Company filings in Luxembourg for Microsoft Luxembourg Sarl show it has very significant financial dealings with two key Microsoft subsidiaries here.

Accounts for the year to end-June 2012 show that at year’s end the Luxembourg company was owed €133.5 million by Dublin-registered Microsoft Global Finance and €34.6 million by Microsoft Ireland Operations Ltd, also based in Dublin.

The Luxembourg company in turn owed €106.7 million to Microsoft Ireland Operations at year’s end and €1.8 million to Microsoft Global Finance.

Luxembourg is used by many multinationals to reduce their tax bills by way of inter-group loan arrangements that create net tax deductible charges. It is not known if Microsoft Luxembourg Sarl is used in this way.

Online sales

The accounts for Microsoft Luxembourg say it was incorporated in 2003 and develops, manufactures and distributes software and hardware products and associated services. It had eight employees and a net turnover of €378 million.

Turnover was mainly from the online sale of Microsoft products, say the accounts, which also detail how the company treats Xbox Live subscriptions and tokens. During the year it had “external charges” of €368 million which were in the main royalties paid by it to Microsoft Ireland Operations Ltd, according to the accounts.

Income and charges were identical (€388,875,956.59) so that the company recorded neither a profit or a loss.

Microsoft Global Finance does not publish accounts but the accounts for the year to the end of June 2013 for Microsoft Ireland Operations Ltd, show it had pre-tax profits of €771 million on a turnover of €15 billion.

It had an average of 703 staff during the year, at a cost of €96.5 million, and paid corporation tax of €99 million. It is the 100 per cent owner of Microsoft Luxembourg Sarl. The Dublin company paid “administrative expenses” of €12.5 billion in the 2013 year, but the accounts give no explanation as to what this means.

Microsoft Ireland Operations Ltd has registered offices at 70 Sir John Rogerson's Quay, Dublin. Its directors include Ben Orndorff and Keith Dolliver, who have addresses in Washington State, US, and who are also directors of Microsoft subsidiaries in Luxembourg.

Separate buying contracts

On Microsoftstore.com Mr Orndorff is described as the manager of Microsoft Luxembourg Sarl. The site says that purchasers of electronic software downloads are contracting with Microsoft Luxembourg while those buying physical products are contracting with Microsoft Ireland Operations Ltd. People who buy both types of product at the same time are given separate purchase confirmations from the two companies.