Technology

The issues that generated this debt pertains to intercompany transfer pricing.

Can someone explain what this means in english?

Edit: I looked into it more and it seems the IRS objects to how Microsoft attributed cost and revenue between its international entities. I’ve heard of this practice being used to arbitrarily shift tax burden internationally. For example, let’s say a US company builds Widgets that cost $20 to make and sells them for $50. By normal accounting, that would result in a net of $30 taxable in the US. But if the company spins up a subsidiary in Ireland to hold its Widget production patents, they can charge the US branch $30 per unit in patent royalties. This results in net $0 taxable in the US and $30 taxable in Ireland. One limitation is that the money has to stay in Ireland. But if the company is already a multi-national one, there’s a good chance they have legitimate business expenses in Europe that the money could be later spent on. The end result is that talent and work from American workers, and revenue largely coming from American buyers, is being manipulated to avoid paying taxes back into the American economy, just because the business has international interests and there are many tax havens overseas.