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China Says ‘Company M’ Owes It $140 Million Taxes
Gillian Wong
A U.S. multinational company will have to pay the Chinese government $140
million in back taxes and interest after authorities found what they called
a major tax avoidance case, China’s state news agency said.
The official Xinhua News Agency said Sunday the U.S. firm, which it referred
to only as “Company M,” admitted to evading taxes when confronted by
Chinese tax authorities and had agreed to pay 840 million yuan in back taxes
and interest for an unspecified period. The firm also agreed to pay more
than 100 million yuan in additional taxes every year, the report said.
The report did not say when the investigation took place or when the company
responded.
Xinhua described the company as being globally well-known and having long
been among the best of the world’s top 500 companies. It said the U.S. firm
set up a wholly-owned foreign enterprise in Beijing in 1995.
The description matches, at least in part, that of U.S. software giant
Microsoft, a Fortune 500 company that set up its Chinese subsidiary
Microsoft (China) Co. in Beijing in 1995.
China’s State Administration of Taxation did not immediately respond to
requests for comment. The Xinhua report was posted on its website,
indicating that the article represented the agency’s official stance.
Microsoft, responding to a request for comment, would neither confirm nor
deny that it was the company referred to in the Xinhua report.
The Redmond, Wash., company said Wednesday that in 2012, Chinese and U.S.
tax authorities agreed to a bilateral “advanced pricing agreement”
regarding Microsoft’s operations in China. Such agreements are a way for
tax authorities and tax payers to avoid costly disputes and to resolve cross
-border double taxation issues.
“The [2012] agreement is an acknowledgment by both countries that Microsoft
’s profits are subject to the appropriate tax in China,” the company said.
“China receives tax revenue from Microsoft consistent with the terms of
the agreed advanced pricing agreement.”
The Xinhua report said the U.S. company’s Chinese subsidiary had reported
losses exceeding 2 billion yuan over six years without specifying the years,
while other players in the industry in Beijing were reporting profit
margins of more than 12%. This discrepancy triggered the investigation,
which found that the Chinese subsidiary was sending more than half of its
profits to its U.S. parent as fees for research and development services and
technical support. The authorities concluded that by doing so, the company
was “unreasonable,” the report said.
Xinhua said the incident “revealed a common tactic used by multinational
companies to avoid taxes” – the transfer of profits to other territories
so as to benefit from more favorable tax rates.
Separately in 2012, a U.S. Senate committee found that Microsoft shifted
intellectual property to subsidiaries in Singapore, Ireland and Puerto Rico
to avoid roughly $4 billion in U.S. taxes in 2011. It said that licensing
rights and revenue sometimes traveled through more than one subsidiary to
minimize the tax bill. Microsoft said at the time that the company’s
strategy was legal and urged reforms in the U.S. tax code to make it more
competitive.
Microsoft is currently the subject of an investigation by Chinese antitrust
authorities who in August said they were looking at how the company
distributes its media player and browser software in the country as well as
how Microsoft sells its Office and Windows software. Microsoft has said it
is “committed to complying with China’s laws” and addressing the concerns
of the Chinese regulator conducting the investigation, the State
Administration for Industry and Commerce.
– Shira Ovide in San Francisco contributed to this article.
Gillian Wong
A U.S. multinational company will have to pay the Chinese government $140
million in back taxes and interest after authorities found what they called
a major tax avoidance case, China’s state news agency said.
The official Xinhua News Agency said Sunday the U.S. firm, which it referred
to only as “Company M,” admitted to evading taxes when confronted by
Chinese tax authorities and had agreed to pay 840 million yuan in back taxes
and interest for an unspecified period. The firm also agreed to pay more
than 100 million yuan in additional taxes every year, the report said.
The report did not say when the investigation took place or when the company
responded.
Xinhua described the company as being globally well-known and having long
been among the best of the world’s top 500 companies. It said the U.S. firm
set up a wholly-owned foreign enterprise in Beijing in 1995.
The description matches, at least in part, that of U.S. software giant
Microsoft, a Fortune 500 company that set up its Chinese subsidiary
Microsoft (China) Co. in Beijing in 1995.
China’s State Administration of Taxation did not immediately respond to
requests for comment. The Xinhua report was posted on its website,
indicating that the article represented the agency’s official stance.
Microsoft, responding to a request for comment, would neither confirm nor
deny that it was the company referred to in the Xinhua report.
The Redmond, Wash., company said Wednesday that in 2012, Chinese and U.S.
tax authorities agreed to a bilateral “advanced pricing agreement”
regarding Microsoft’s operations in China. Such agreements are a way for
tax authorities and tax payers to avoid costly disputes and to resolve cross
-border double taxation issues.
“The [2012] agreement is an acknowledgment by both countries that Microsoft
’s profits are subject to the appropriate tax in China,” the company said.
“China receives tax revenue from Microsoft consistent with the terms of
the agreed advanced pricing agreement.”
The Xinhua report said the U.S. company’s Chinese subsidiary had reported
losses exceeding 2 billion yuan over six years without specifying the years,
while other players in the industry in Beijing were reporting profit
margins of more than 12%. This discrepancy triggered the investigation,
which found that the Chinese subsidiary was sending more than half of its
profits to its U.S. parent as fees for research and development services and
technical support. The authorities concluded that by doing so, the company
was “unreasonable,” the report said.
Xinhua said the incident “revealed a common tactic used by multinational
companies to avoid taxes” – the transfer of profits to other territories
so as to benefit from more favorable tax rates.
Separately in 2012, a U.S. Senate committee found that Microsoft shifted
intellectual property to subsidiaries in Singapore, Ireland and Puerto Rico
to avoid roughly $4 billion in U.S. taxes in 2011. It said that licensing
rights and revenue sometimes traveled through more than one subsidiary to
minimize the tax bill. Microsoft said at the time that the company’s
strategy was legal and urged reforms in the U.S. tax code to make it more
competitive.
Microsoft is currently the subject of an investigation by Chinese antitrust
authorities who in August said they were looking at how the company
distributes its media player and browser software in the country as well as
how Microsoft sells its Office and Windows software. Microsoft has said it
is “committed to complying with China’s laws” and addressing the concerns
of the Chinese regulator conducting the investigation, the State
Administration for Industry and Commerce.
– Shira Ovide in San Francisco contributed to this article.