Microsoft put their tax-evasion in writing and now they owe $29 billion
I'm coming to Minneapolis! Oct 15: Presenting The Internet Con at Moon Palace Books. Oct 16: Keynoting the 26th ACM Conference On Computer-Supported Cooperative Work and Social Computing.
If there's one thing I took away from Propublica's explosive IRS Files, it's that "tax avoidance" (which is legal) isn't a separate phenomenon from "tax evasion" (which is not), but rather a thinly veiled euphemism for it:
That realization sits behind my series of noir novels about the two-fisted forensic accountant Martin Hench, which started with last April's Red Team Blues and continues with The Bezzle, this coming February:
A typical noir hero is an unlicensed cop, who goes places the cops can't go and asks questions the cops can't ask. The noir part comes in at the end, when the hero is forced to admit that he's being going places the cops didn't want to go and asking questions the cops didn't want to ask. Marty Hench is a noir hero, but he's not an unlicensed cop, he's an unlicensed IRS inspector, and like other noir heroes, his capers are forever resulting in his realization that the questions and places the IRS won't investigate are down to their choice not to investigate, not an inability to investigate.
The IRS Files are a testimony to this proposition: that Leona Hemsley wasn't wrong when she said, "Taxes are for the little people." Helmsley's crime wasn't believing that proposition – it was stating it aloud, repeatedly, to the press. The tax-avoidance strategies revealed in the IRS Files are obviously tax evasion, and the IRS simply let it slide, focusing their auditing firepower on working people who couldn't afford to defend themselves, looking for things like minor compliance errors committed by people receiving public benefits.
Or at least, that's how it used to be. But the Biden administration poured billions into the IRS, greenlighting 30,000 new employees whose mission would be to investigate the kinds of 0.1%ers and giant multinational corporations who'd Helmsleyed their way into tax-free fortunes. The fact that these elite monsters paid no tax was hardly a secret, and the impunity with which they functioned was a constant, corrosive force that delegitimized American society as a place where the rules only applied to everyday people and not the rich and powerful who preyed on them.
The poster-child for the IRS's new anti-impunity campaign is Microsoft, who, decades ago, "sold its IP to to an 85-person factory it owned in a small Puerto Rican city," brokered a deal with the corporate friendly Puerto Rican government to pay almost no taxes, and channeled all its profits through the tiny facility:
That was in 2005. Now, the IRS has come after Microsoft for all the taxes it evaded through the gambit, demanding that the company pay it $29 billion. What's more, the courts are taking the IRS's side in this case, consistently ruling against Microsoft as it seeks to keep its ill-gotten billions:
Now, no one expects that Microsoft is going to write a check to the IRS tomorrow. The company's made it clear that they intend to tie this up in the courts for a decade if they can, claiming, for example, that Trump's amnesty for corporate tax-cheats means the company doesn't have to give up a dime.
This gambit has worked for Microsoft before. After seven years in antitrust hell in the 1990s, the company was eventually convicted of violating the Sherman Act, America's bedrock competition law. But they kept the case in court until 2001, running out the clock until GW Bush was elected and let them go free. Bush had a very selective version of being "tough on crime."
But for all that Microsoft escaped being broken up, the seven years of depositions, investigations, subpoenas and negative publicity took a toll on the company. Bill Gates was personally humiliated when he became the star of the first viral video, as grainy VHS tapes of his disastrous and belligerent deposition spread far and wide:
If you really want to know who Bill Gates is beneath that sweater-vested savior persona, check out the antitrust deposition – it's still a banger, 25 years on:
In cases like these, the process is the punishment: Microsoft's dirty laundry was aired far and wide, its swaggering founder was brought low, and the company's conduct changed for years afterwards. Gates once told Kara Swisher that Microsoft missed its chance to buy Android because they were "distracted by the antitrust trial." But the Android acquisition came four years after the antitrust case ended. What Gates meant was that four years after he wriggled off the DoJ's hook, he was still so wounded and gunshy that he lacked the nerve to risk the regulatory scrutiny that such an anticompetitive merger would entail.
What's more, other companies got the message too. Large companies watched what happened to Microsoft and traded their reckless disregard for antitrust law for a timid respect. The effect eventually wore off, but the Microsoft antitrust case created a brief window where real competition was possible without the constant threat of being crushed by lawless monopolists. Sometimes you have to execute an admiral to encourage the others.
A decade in IRS hell will be even more painful for Microsoft than the antitrust years were. For one thing, the Puerto Rico scam was mainly a product of ex-CEO Steve Ballmer, a man possessed of so little executive function that it's a supreme irony that he was ever a corporate executive. Ballmer is a refreshingly plain-spoken corporate criminal who is so florid in his blatant admissions of guilt and shouted torrents of self-incriminating abuse that the exhibits in the Microsoft-IRS cases to come are sure to be viral sensations beyond even the Gates deposition's high-water mark.
It's not just Ballmer, either. In theory, corporate crime should be hard to prosecute because it's so hard to prove criminal intent. But tech executives can't help telling on themselves, and are very prone indeed to putting all their nefarious plans in writing (think of the FTC conspirators who hung out in a group-chat called "Wirefraud"):
Ballmer's colleagues at Microsoft were far from circumspect on the illegitimacy of the Puerto Rico gambit. One Microsoft executive gloated – in writing – that it was a "pure tax play." That is, it was untainted by any legitimate corporate purpose other than to create a nonsensical gambit that effectively relocated Microsoft's corporate headquarters to a tiny CD-pressing plant in the Caribbean.
But if other Microsoft execs were calling this a "pure tax play," one can only imagine what Ballmer called it. Ballmer, after all, is a serial tax-cheat, the star of multiple editions of the IRS Files. For example, there's the wheeze whereby he has turned his NBA team into a bottomless sinkhole for the taxes on his vast fortune:
Or his "tax-loss harvesting" – a ploy whereby rich people do a "wash trade," buying and selling the same asset at the same time, not so much circumventing the IRS rules against this as violating those rules while expecting the IRS to turn a blind eye:
Ballmer needs all those scams. After all, he was one of the pandemic's most successful profiteers. He was one of eight billionaires who added at least a billion more to his net worth during lockdown:
Like all forms of rot, corruption spreads. Microsoft turned Washington State into a corporate tax-haven and starved the state of funds, paving the way for other tax-cheats like Amazon to establish themselves in the area. But the same anti-corruption movement that revitalized the IRS has also taken root in Washington, where reformers instituted a new capital gains tax aimed at the ultra-wealthy that has funded a renaissance in infrastructure and social spending:
If the IRS does manage to drag Microsoft through the courts for the next decade, it's going to do more than air the company's dirty laundry. It'll expose more of Ballmer's habitual sleaze, and the ways that Microsoft dragged a whole state into a pit of austerity. And even more importantly, it'll expose the Puertopia conspiracy, a neocolonial project that transformed Puerto Rico into an onshore-offshore tax-haven that saw the island strip-mined and then placed under corporate management:
If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:
My next novel is The Lost Cause, a hopeful novel of the climate emergency. Amazon won't sell the audiobook, so I made my own and I'm pre-selling it on Kickstarter!
“Only the little people pay taxes.” – Leona Helmsley
The right wing press and media are forever telling us that personal taxes are too high. What is certain is that if we want effective, reliable public services fit for purpose we have to pay for them. The key word here is "we".
For the Tory Party, Reform UK, and shamefully the Labour Party under Starmer, that "we" is you and me. I accept I have to pay taxes if I want my grandchildren educated, healthcare free at the point of use, police protection and military defence etc. What I resent is the tax avoidance of large corporations, multinationals and other businesses: their tax avoidance is mine and your increased tax burden.
If big business paid its fair share of taxes then the rest of us really could witness a reduction in personal taxation. But the majority of politicians wont admit this let alone do anything about it. These companies will of course pay some tax in order to preserve their public image as socially responsible organisations but in reality, the amount of tax THEY pay is minimal.
Let me give an example. In 2023 Taxwatch reported:
"Seven large tech groups estimated to have dodged £2bn in UK tax in 2021" (Taxwtch: 16/10/23)
These seven companies - including Amazon, Goggle and Meta - paid an effective tax rate of 5% when the actual tax rate is 19%. These companies did not break the law. They simply use a variety of accounting tricks, such as booking sales they made in the UK in a country with lower taxation rates. They also ensure that UK subsidiaries pay other subsidiaries of the same company for "services", thereby reducing their profit on paper but not in reality.
In short, we the ordinary taxpayer, who have no such accounting tricks at our disposal, have to make up the shortfall in taxation brought about by these greedy corporations and other businesses like them
Much to their discredit, politicians are complicit in tax avoidance schemes, which is something else the media is very reluctant to discuss.
His Majesty's Revenue and Customs (HMRC) actually publishes a “Current list of named tax avoidance schemes, promoters, enablers and suppliers”. What it does not do is publish how much these companies are costing the exchequer.
The register of tax avoidance companies is essentially a "name and shame" register: it does not publicly say how much tax each company has avoided or how much HMRC thinks is owed by each company. Nor does it give us an aggregate tax loss figure for the list as a whole. In short, it is doing virtually nothing to raise the tax revenues from these sources.
Again, you and I have to make up the shortfall in tax revenues. So, next time the press, media or politicians start complaining about personal taxation levels, remember you and I are paying higher taxes than we need so that the shareholders and owners of these tax avoidance companies can increase there already considerable wealth.
