Ballmer Says Tax breaks Would Move Microsoft Jobs Away From US

Microsoft Corp. CEO, Steven Ballmer made it clear that they would move some employees offshore, if President elect Barack Obama plans to imposes higher taxes on U.S. companies’ foreign profits. The statement follows Obama’s announcement on May 4 that proposed restricting about $190 billion in tax breaks for offshore companies over the next decade. Ballmer explained that the move would make U.S. jobs more expensive. According to Ballmer the company would do better overseas than keeping inside the US.

U.S. tax rules allow the companies to delay the payment of corporate rates as high as 35 percent on most types of foreign profits as long as the money is invested overseas. Obama’s proposed restrictions would end the incentives to keep foreign profits tax-deferred. This would allow the companies to invest them in U.S.

In the last annual report for 2008, Microsoft reported an overall effective tax rate of 26 percent. Microsoft’s effective tax rates are less than statutory tax rate as the foreign earnings are taxed at lower rates.

According to a Washington economist at Brookings Institution research center, Barry Bosworth

many software companies such as Microsoft have exploited tax and trade rules in the U.S. and other countries to achieve a low overall tax rate.

Bosworth argues that Microsoft develops a product like Windows in the United States and deducts those costs against U.S. income. Then it transfers the technology to a subsidiary in Ireland, where corporate tax rates are lower, and exempts the licensing fees. Microsoft then   assigns its foreign sales to the Irish subsidiary. So the company doesn’t claim the income in the United States. He explains that Microsoft wants to do is deduct the cost at a high tax rate and report the profits at a low tax rate.

According to the Microsoft’s Website the company employed 95,029 people worldwide as on April 21, out of which 56,552 were based in the United States. Since January the company has downsized shedding about 1,000 jobs.

Ballmer proposes that higher taxes would reduce the company’s profits that comprise the Dow Jones Industrial Average by between 10 and 15 percentage points. Ballmer indicates that the Dow would come down and this will effect the shareholders and the company.

Further, Obama also proposes to alternate a set of rules known as check the box that allow companies to shelter foreign profits in offshore subsidiaries that can be disregarded for U.S. tax purposes.

Ballmer along with other top U.S.software company executives are pushing back against the tax proposals in meetings with White House officials that included Jason Furman, deputy director of the National Economic Council, and the heads of congressional committees such as House Ways and Means Committee Chairman Charles Rangel, a New York Democrat.

Overall it seems a bit ironic that most significant trading partners and global partners have chosen the track to reduce corporate tax rates to stimulate economic growth and inhibit the corporate tax rates.