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Comment by pdovy | Hacker News Reader

How is it that the initial (2002-2013 interest excluded) tax bill is 5 billion kroner, when the acquisition cost was only 10.8 billion kroner? Is the tax rate really that high? I understand that the tax is not on the acquisition itself but rather the transfer of the rights, but surely the market value of those rights should be less than the market value of the entire company at the same point in time.

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In Denmark the company taxation is 25%, but it is very likely that a large part of the amount is a fine for doing it, although this is just a guess.

Furthermore, when you value a company it could be that their assets are extremely high, but they at the same time have high liabilites. This (although I do not know if it was the case), could lead to a lower price for the company, than the market value of the product.

> In Denmark the company taxation is 25%

Soon to be 22%.

Google Translate says that Microsoft underpriced Navision software by 11 billion kroner in the "previous income year," and owes 5.8 billion kroner in taxes on that!? That sounds like an income tax dispute on annual earnings.

I don't understand Danish, I can't figure this out.

The thing is, it's unlikely that Microsoft managed to underreport 11 billion kroner in profits. From what I've read, Navision showed only modest growth, just one in a series of multibillion-dollar acquisitions by Microsoft that failed to work out.

Until 2006, Navision was part of Microsoft Business Solutions, which was a breakeven operation at best. The homegrown CRM product exploded in popularity, while the acquired ERP products stagnated. Since CRM is wildly profitable, the only way for Business Solutions to have operated at breakeven was for the ERP products to lose money.

Given the poor historical performance, it would take quite the turnaround for Microsoft to have made 11 billion kroner = $1.92 billion on Navision in 2012.

I wonder if the Danish tax authority is attempting to apply Microsoft's overall profit margin to calculate a transfer price for Navision? That would really add insult to injury when it comes to Microsoft's sorry history of acquisitions.

Sources:

(1) "... their market share in their CRM software has increased but their share in ERP has decreased." http://www.technoreporter.com/technology/software/microsoft-...

(2) "Contrary to the downward trend for its four enterprise resource planning (ERP) brethren, the Microsoft Dynamics CRM product (although still only a fraction of the overall Dynamics revenue) grew significantly in revenue year over year and surpassed the one-million-users mark in 2009." http://blog.technologyevaluation.com/blog/2010/02/15/microso...

I think the article said $10 billion dollars - not kroner for the acquisition (or $60 billion kroner).

This sort of tax avoidance feel unethical to me - you have 600 employees in Denmark developing this software, but all the profits are being booked in a tax haven. Microsoft should have to move the developers to Bermuda or Ireland if they want to avoid the Danish tax.

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