Microsoft Australia pays extra tax after ATO audit

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Microsoft Australia pays extra tax after ATO audit

Shifts hundreds of millions in revenue back to Australia.

Microsoft Australia has booked an additional $326 million of revenue - and paid an extra $39 million in tax - after restructuring its operating model following an ATO audit.

The company settled with the ATO in August 2017 to resolve matters from a company audit covering its 2010 to 2013 years.

As part of its settlement with the ATO, Microsoft paid an additional $39 million in previous tax liabilities.

This saw Microsoft's total 2017 tax bill increase to $87.3 million on taxable income of $130.5 million.

In 2016, Microsoft paid $36.4 million on taxable income of $92.3 million.

The software vendor also restructured its Australian business to transact with customers directly onshore.

Beginning in February 2017, Microsoft Australia transitioned from a commission agent operating model to a limited risk distributor, allowing the local arm to own and sell its own inventory in Australia and report its own product revenue along with commissions from its parent company.

Microsoft has been in the crosshairs of the ATO for its tax arrangements.

Microsoft, Apple and Google were hauled in front of a senate committee investigating tax minimisation strategies in 2015, where Microsoft vice president of worldwide tax Bill Sample admitted most of the company's Australian revenue was booked by an affiliate business in Singapore.

"The products and services we sell to Australian customers are sold by the Singapore group, and the sales people are primarily located in Singapore," Sample said at the time.

For fiscal 2014, Sample said, Microsoft's Australian product and customer service revenue was around $2 billion, which was booked and taxed in Singapore.

On 1 January 2016, the federal government's multinational tax avoidance law (MAAL) came into effect, which gives the ATO additional powers to ensure global companies return their sales to Australia.

The government estimates it will recoup more than $7 billion every year as a result.

The law applies to multinational corporations with global revenues of more than $1 billion operating in Australia.

After the introduction of the MAAL, multinational tech firms like Google and Facebook stated they would return sales back to Australia.

Microsoft Australia's 2017 annual report indicates a significant amount of revenue has been repatriated. 

The vendor's Australian revenue surged by nearly 45 percent in the financial year ending 30 June 2017 to reach $1.05 billion.

A Microsoft spokesperson admitted the change to the way it sold and recognised revenue was the primary reason for the revenue growth. The spokesperson declined to comment further.

Microsoft now records local revenue and related costs from volume licensing, online sales, business solutions and hardware through the Australian business.

The most obvious revenue spike came from full packaged products (FPP), which includes retail versions of Microsoft's licences products such as Office or Windows.

Microsoft reported $201 million in FPP revenue in 2017, compared with just $23 million last year.

Microsoft also recognised $41 million of 'licensing' as a new line item in its 2017 report.

The 2017 financial year was the first year under new managing director Steven Worrall, who took over the reins from Pip Marlow following her departure from Microsoft Australia in January.

After the end of the 2017 financial year, Microsoft Australia was promoted out of the Asia-Pacific region to be recognised as its own area and join the D8 group of the most developed economies.

Microsoft Australia now employs close to 1300 staff.

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