The case puts further focus on the international tax practices of major multinationals that have been accused in recent years of shifting revenue to lower tax jurisdictions in an effort to avoid higher taxes in their major markets.
"We disagree with the proposed adjustments and will vigorously contest the (demand) through the IRS's administrative appeals office and, if necessary, judicial proceedings," the company said in its filing to the US markets authority.
In a blog post, Microsoft said the issue with the IRS was with its transferring of revenue across international jurisdictions during the period.
The practice, called cost-sharing, is used by "many large multinationals...because it reflects the global nature of their business," the company said.
"We strongly believe we have acted in accordance with IRS rules and regulations and that our position is supported by case law," the blog post added.
Reached by AFP, the IRS said it was against US law for it to either confirm or deny an ongoing tax case.
Microsoft said that the appeal process with the IRS would take years and if it failed, the company would fight the claim in the courts.
The Windows maker said the demand emerged out of a decade-long discussion with the IRS "about how we allocated our income and expenses for tax years beginning as far back as 2004."
"We have changed our corporate structure and practices since the years covered by the audit, and as a result, the issues raised by the IRS are relevant to the past but not to our current practices," it said.
Microsoft added that "since 2004, we have paid over $67 billion in taxes to the US."
The accounting practices of US big tech companies have long posed a problem for authorities.
Governments have accused companies such as Apple, Amazon or Microsoft of shifting revenue through low or zero tax jurisdictions in order to escape taxation in their main markets and maximize profits.
This spurred a major international agreement among 140 countries brokered by the Organization for Economic Cooperation and Development (OECD) that is designed to better share and regulate the tax revenue of the giants.
The OECD on Wednesday published a draft agreement implementing a major part of that deal with hopes of having it ratified by the end of the year.
In the EU, authorities in 2016 ordered Apple to pay 13 billion euros ($14 billion) in back taxes over similar accounting practices, but Brussels lost an appeal to Apple and is awaiting the outcome of a further appeal.
Profits up at Indian IT giant TCS on overseas growth
Mumbai (AFP) Oct 11, 2023 -
Profits for Indian software giant TCS were up 8.7 percent on-year in the September quarter thanks to robust growth in emerging markets and client loyalty, the company announced Wednesday.
Tata Consultancy Services, India's second most valuable company by market capitalisation, has benefitted from an IT boom that has seen the country become a back office to the world through subcontracted work.
The company earns more than 80 percent of its revenues from Western markets, and alongside other tech companies benefited during the pandemic from the increased demand for digital services.
Revenue at the firm was up 7.9 percent for the quarter with net profits of 113.42 billion rupees ($1.36 billion).
Analysts had widely expected India's largest software service exporter to report single-digit revenue and profit growth owing to a challenging global economic outlook.
TCS nonetheless made significant inroads into overseas markets for the period, reporting growth of 15.9 percent in the Middle East and Africa followed by a 13.1 percent increase in Latin America.
"Strong deal momentum delivered us a very large order book," chief executive K Krithivasan said at a media briefing, according to business broadsheet Livemint.
He added that resilient demand, long-term client programming and client appetite for new technologies including artificial intelligence "give us confidence in our longer-term growth prospects".
The board approved its fifth share buyback in six years at a spend of $2.04 billion with a 15 percent premium.
TCS shares closed down 0.44 percent in Mumbai trading ahead of the earnings announcement.
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