The Tax Rate For US Corporations And Microsoft

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The US 2011 tax revenue should be higher than ever, if you look at the surging profits of corporations like Microsoft and others, but you may want to look at their quarterly results for some clues as to what’s happening to US corporate taxes.

Things were looking pretty good for Microsoft at the end of 2010, with a 30 percent increase in profit and a gain of roughly 35 percent per share. At the same time, the IRS and other countries didn’t see numbers anywhere near that.  In the United States Microsoft paid just under $500 million in taxes, and in other countries, they were paying as low as 7% rates on their multiple billions of dollars in profits.

Considering how important the deficit is in the political world today, along with the condemnation of companies who use overseas accounting work to get out of a good amount of their taxes, it’s interesting to see how Microsoft’s accounting wizards were able to work their number down to such a low amount.

Part of this, in fairness, was from an overpayment in the past, as well as Microsoft themselves generally overestimating the taxes they owe in a given year.  And they may be doing more business with individuals purchasing their products in other countries as well, but it’s hard to guess at what effect that may be making.

But it’s clear that Microsoft is able to channel buyers through the countries of Puerto Rico, Singapore, and Ireland, countries with extremely low tax rates.  By working through these countries, they are able to get around much of the amount they should be paying.

The standard tax rate on a United States corporation is 35%.  When Microsoft pays less than half that, you can see that revisiting the US corporate tax law may be necessary.

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