Now Microsoft's UK corporate tax arrangements are under scrutiny

Lynsey Barber
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Microsoft complies with all teax rules and regulatiosn, the company said (Source: Getty)

Microsoft is the latest US tech company to come under scrutiny in the continuing row over corporation tax after it was revealed that it made a deal with UK authorities.

The company, founded by Bill Gates, avoided paying £100m in corporation tax it's claimed, by revenue from Britain being recorded in Ireland where the tax rate is 12.5 per cent rather than the 20 per cent rate in Britain.

That revenue totals more than $8bn since 2011, according to an investigation by the Times, and the offshore structure was agreed in a deal with HMRC in 2012, it's claimed.

Read more: Zero is the new tax? Netflix corporation tax bill scrutinised

The company, which last week dropped $26bn on buying up LinkedIn, joins global corporations such as Google, Facebook, Netflix, Starbucks and Cadbury owner Mondelez over their legal but controversial tax arrangements in the UK.

Margaret Hodge, the chair of the public accounts committee which earlier this year grilled Google on its so-called sweetheart tax deals, accused HMRC of failing to defend the public interest by agreeing such deals.

“I am fed up of them hiding behind confidentiality. We need to see the agreements made because we all think they are sweetheart deals," she told the newspaper, which claims several other multinational companies have made such deals, known as an advance pricing agreement.

Microsoft, which had not responded to a request for comment at the time of publication, told the newspaper that it complied with all tax ruled and regulations, while HMRC said such agreements would not reduce the amount the amount of tax paid.

Read more: Corporation tax to fall to 17 per cent by 2020

Firms often make arrangements that minimise their tax bills, however, in the UK they are increasingly seen as a depriving the public purse and the Treasury has since announced the introduction of a diverted profits tax of 25 per cent

To fund Microsoft's acquisition of LinkedIn it will take out a loan instead of using some of its $100bn cash pile. The firm would have to pay a 35 per cent rate to repatriate the offshore cash to the US, making it cheaper to borrow the money needed for the deal. It's estimated the company will save around $9bn.

Google came to an arrangement with UK authorities to repay £130m in the UK earlier this year, which was widely rounded on as not good enough. In France, Google's offices were raided in May in a probe into tax payments, with French authorities insisting no deal would be made.

Meanwhile, Facebook decided it should pay tax in the UK rather than Ireland after it was revealed it paid just £4,327 corporation tax to HMRC last year - less than the cost of some annual travelcards.

New EU rules could force these companies to make their tax documents public bringing to light exactly how much tax they pay in each country.

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