As longs as Microsoft spends income they earn overseas, they do not have to pay taxes on that money. However, if Microsoft tries to repatriate the money, the company will pay a higher tax (Bort, 2014). Therefore, as the CFO, it is my duty to ensure that offshore banking and minimized tax rates continue to be part of the company’s financial strategy. The type of contact that would be most valuable to the company and ensure that it does not violate the law is to license patents to foreign offices that have lower tax rates. Microsoft has three foreign regional operating centers that include Puerto Rico, Ireland, and Singapore. The legal ownership of intellectual property resides with Microsoft Corporation; however, the company licenses the foreign groups the right to use the relevant intellectual property. Therefore, the foreign ROC groups can produce and sell Microsoft software products in their respective regions and would not pay U.S taxes.

Second, Microsoft should turn to the debt markets to fund dividends rather than domiciling cash. When the company borrows to pay dividends, it actually lower future tax outlays since the cash it pays for debt services is tax deductible (Bort, 2014). Although there is a limit to this strategy, Microsoft has the financial power to service its debts. Third, the company should transfer the balance of funds to foreign firms it has invested. It will be difficult for auditors to find these transactions when examining the records of taxpayers.

In addition, it is important to understand that Microsoft always pays the appropriate amount of taxes in regions they operate to ensure a legal structure in its operations. Microsoft owes it to its shareholders to keep its tax bill at a minimum level. The company’s tax results follow from its operations, which is a global business that requires the company to operate in foreign markets (Bort, 2014). When we conduct our business at home and abroad, we abide by the tax laws of the U.S. and foreign countries as written. As the CFO, we believe that the tax rules can be improved. Moreover, Microsoft has not declared itself a subsidiary of a foreign firm; therefore, this means that the company has not technically engaged in an inversion.

Taking the right action means that you abide by the rules or regulations. Besides, it entails correctly applying a principle. On the other hand, good relates to benefits. Being good encompasses having the character and qualities that we can perceive as having moral worth. In this context, what is right is that Microsoft does not have to pay taxes on revenue generated overseas as long as they spend those funds in foreign countries. Additionally, it is right for Microsoft to license patents to foreign offices that have lower tax rates. When Microsoft sells a software product that depends on those patents, it gets to assign money to the foreign groups and avoids paying U.S. taxes on it. What is good is that the company can decide to borrow to pay dividends since it will lower its future tax outlay. It is good for the company to pay the appropriate amount of taxes in regions they operate.

My personal belief regarding this issue is that although it is legal for Microsoft to keep $92.9 billion in offshore accounts, it is a wrong move. The company should disclose to the government where they pay their taxes. It is wrong for Microsoft to decline to provide a geographic breakdown of its revenue and tax bills. Lastly, the U.S. international tax rules are outdated thus it cannot compete with the tax system of the company’s major trading partners.

References

Bort, J. (2014, Aug. 23). Microsoft has nearly $93 billion in overseas cash, and it’s reduced its tax bill by almost $30 billion. Business Insider. Retrieved from http://www.businessinsider.com/microsofts-offshore-cash-2014-8

 
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