Microsoft defends routing 40% of profits through Ireland after EU disclosure

Microsoft published its first EU country-by-country tax report, revealing nearly 40% of global pretax income was booked in Ireland.nytimes+1
The company said it pays "the taxes we owe in every country" and has the second-highest corporate tax bill in the world after Apple .engadget
The IRS is separately seeking roughly $29 billion in unpaid taxes from Microsoft over transfer pricing disputes dating back to 2004, which the company is contesting.asiae

Microsoft is pushing back against scrutiny of its corporate tax practices after a New York Times investigation highlighted how the tech giant channels a vast share of its global profits through low-tax European jurisdictions, paying a fraction of the rates levied in countries where it employs most of its workforce.

What the Data Shows

The disclosure stems from Microsoft's first public country-by-country report, filed under a European Union directive that took effect for fiscal years ending in 2025. The report, covering the 12 months to June 2025, shows that Microsoft booked nearly 40 percent of its global pretax income in Ireland, where just 3 percent of its worldwide employees are based. The company paid a current tax rate of about 14 percent on those Irish profits, according to the Institute on Taxation and Economic Policy, while Law360 reported a cash tax rate of roughly 11.9 percent.law360+3

By contrast, Microsoft reported only 0.5 percent of its income in Germany, Europe's largest economy, which has a corporate tax rate well above 25 percent. In Luxembourg, 34 Microsoft employees generated $283 million in profit at a tax rate of just 3 percent. The New York Times reported on July 3 that U.S. companies collectively deferred or avoided at least $40 billion in taxes through similar arrangements.engadget+3

Microsoft's Response

In a blog post accompanying the filing, Microsoft acknowledged that "some figures may look surprising at first" but said it follows all applicable tax laws. Jeff Bullwinkel, the company's vice president and deputy general counsel in Europe, said Microsoft had the second-highest corporate tax bill in the world after Apple , totaling $28.7 billion, including $6.3 billion within the EU. He also pointed to $176 billion in capital expenditures and $89.2 billion in research and development spending across its markets.engadget

"Microsoft pays the taxes we owe in every country where we operate," Bullwinkel said.engadget

Broader Implications

The disclosure arrives amid a larger transatlantic clash over how multinational tech firms are taxed. The FACT Coalition, a Washington-based transparency advocacy group, said the report "raises serious questions about the misalignment of economic substance and where profits are located". Microsoft is also contesting a record $28.9 billion transfer pricing dispute with the U.S. Internal Revenue Service for the tax years 2004 through 2013. As other major corporations with calendar-year fiscal years prepare to file their own reports by December, the Microsoft data offers an early and politically charged preview of what those disclosures may reveal.asiae+2

Sources (14)