[thurn]

Transfer pricing is sort of just a pile of black magic. Microsoft's American business is required to charge their European subsidiary some "fair market price" for the Windows intellectual property, but what is a fair price for a license to sell Windows on the European continent? Unlike with fungible goods, there is no established market for this product that the IRS can easily refer to.

In this case Microsoft is saying that some amount of their IP was developed by their overseas subsidiary and thus doesn't need to be included in the transfer pricing calculation, so in their process of making up imaginary amounts of money to charge themselves for their own products they also need to deduct that. If e.g. most of the Windows networking stack was created in Germany they need to figure out what percentage of the value of the overall Windows IP is added by the ability to connect to the internet.

Understandably, it's possible for reasonable observers to disagree on the values chosen here, this is not a case of black and white corporate misconduct (tax issues essentially never are).

[JKCalhoun]

Is this basically the Double Irish With a Dutch Sandwich?

[s_dev]

Double Irish isn't possible as of 2018:

https://en.wikipedia.org/wiki/Double_Irish_arrangement

[badwolf]

This is for the time period 2004-2013

[chirau]

Yes it is. Microsoft routes a lot of its business through the Dublin and Belfast offices. At least now they have an actual office and a DC there. Previously, it was literally just a routing office. Apple and Google do the same as well.

[user_7832]

A Dutch Sandwich sounds like two dry pieces of bread with a thin slice of cheese. I'd discourage MS from getting one.

[ASalazarMX]

Dutch cheeses are not many, but they are tasty even in dry bread. Best paired with a generous cup of évasion fiscale.

[user_7832]

The real crime is not adding enough roomkaas (creamcheese). Seriously, if you've never tried it you're missing out.

[jraby3]

After having just spent a month in Utrecht you are 100% right. Your comment made me smile.

[user_7832]

Thanks :) Utrecht is a beautiful city. Funnily I have an Albert Heijn sandwich planned for dinner tonight.

[stainablesteel]

this sounds complicated, does this sort of thing work in reverse for things "developed" in the EU and used in the US?

[yieldcrv]

it can, sort of. it really depends on what you are optimizing for

there are nearly infinite permutations on how to form your business entities, what combinations of jurisdictions you use

and then you can structure which one does what operations where

additionally, all the countries compete for your business so are really competing against each other

most recognize that volume of transactions within their economy to many entities is more important than their passive taxation to one governmental entity, so they incentive the former

[gjsman-1000]

Part of me is like: 25% tariff, blanket, on everything unless there's an exemption. The list of exemptions can then be carefully curated. I don't care if it's 500 pages long for everything from honey to computer chips; but then at least we know that stupid tax stuff is unprofitable.

[yieldcrv]

part of me is like: why does that particular governmental entity deserve additional payment just because its regulatory environment is uncompetitive in that regard and can't balance its own budget.