Microsoft's latest EU regulatory disclosure reveals that nearly 40% of its global pre-tax profit for the fiscal year ending June 2025 is attributed to Ireland, despite only 3% of its workforce being located there. This highlights the company's ongoing profit shifting to low-tax jurisdictions. This disclosure sheds light on significant corporate tax avoidance practices by Microsoft, with implications for tax policy debates and the effectiveness of EU transparency rules. It may increase pressure on governments to close loopholes and reconsider how multinational profits are taxed. In the filing, Germany's reported profit share was less than 0.5% despite being a major market, while Luxembourg's 34 employees generated $283 million in pre-tax income (a 142% profit margin). Microsoft cites accounting differences and states that tax is not the sole measure of contribution.
Background
Profit shifting is a strategy where multinational companies move profits from high-tax to low-tax jurisdictions, often using internal pricing of intellectual property. The EU's 2021 public country-by-country reporting rules require large companies to disclose revenue and taxes per country, increasing transparency. This disclosure comes as the US IRS seeks $29 billion in back taxes from Microsoft for past profit shifting.