If a Trump administration official told a room full of European policymakers that something is “very dangerous,” you’d naturally assume that in this moment they’d be referring to the Strait of Hormuz, or maybe the rapidly increasing rate of sea-level rise, or our frighteningly understaffed air traffic control system.
But no — administration officials appear far more concerned about the public knowing too much about how U.S. corporations shift their income into offshore tax havens. That’s the urgent message a Treasury official sent to attendees of an international tax conference last week at a panel discussion of a newly implemented European Union (EU) law requiring large corporations to make detailed public disclosures designed to help identify corporate tax avoidance.
The new disclosures in question are the result of an EU law, enacted in 2021, that has been binding on U.S. multinationals only since the end of June. The new law requires large companies to give their shareholders basic information on the amount of income, income tax, and full-time employees the company has in EU member countries, as well as certain known non-EU tax havens.
Assistant Treasury Secretary Rebecca Burch told conference attendees she’s concerned that the publication of these country-by-country data points will “allow people to make assumptions” about corporate malfeasance and will ultimately create a “culture of damnation” as these companies are convicted in the court of public opinion.
The obvious response is that when companies publish disclosures they believe are misleading or unrepresentative, they can say so. And that’s exactly what Microsoft did by accompanying its recent country-by-country disclosure with a blog post that could have been titled “pay no attention to the man behind the curtain.”
The company explained that these data “can look unusual without context” and pointed to the cash taxes paid by Microsoft in France as an example. Microsoft’s disclosure shows it received a $96 million tax refund in France last year on a cash basis. The blog post explains that this “reflects a one-time refund of tax overpaid in an earlier year” which “makes this year an outlier.”
Microsoft’s comments are a perfectly sensible critique of the “cash income tax” concept, but this is a red herring. The new EU disclosures also include the far-more-meaningful “current income tax” concept, which is meant to reflect the tax a company pays each year on that year’s income. As the same disclosure shows, Microsoft’s current tax expense in France last year is $131 million, suggesting a healthy 27 percent tax rate on its French income. This comes as no surprise, since no one believes France is any sort of tax haven.
But Microsoft’s blog post is far more notable for what they choose not to discuss at all: namely, the astonishing apparent productivity of its Irish and Luxembourg employees.
The 3 percent of Microsoft employees based on Ireland were, according to Microsoft’s own disclosure, responsible for 38 percent of the company’s earnings last year. Unlike the French data point, these Irish findings support the long-standing and well-documented perception that Ireland has consciously chosen to act as a corporate tax haven, and that Microsoft is especially adept at using these tax havens to artificially funnel profits out of the U.S.
If Microsoft’s Irish disclosures were misrepresentative or misleading, you’d think they’d be explaining this rather than discussing the company’s French results. But they don’t say a word about Ireland and are equally silent on the inconvenient truth that just 34 Luxembourg employees managed to make $283 million for Microsoft last year. In other words, Microsoft goes out of its way to explain anomalous results that anyone would recognize to be anomalous, but when their new disclosures suggest Microsoft is shifting income into tax havens, the company says nothing at all to dispel those beliefs—presumably because the data don’t lie.
Americans overwhelmingly believe that big corporations pay too little tax and should pay more. In that sense, the “culture of damnation” the Trump administration is so concerned about already exists, and ITEP’s research has repeatedly shown that this public perception is entirely accurate.
But the new EU disclosures won’t heighten public anger about corporate tax avoidance unless big multinationals continue to engage in it. When companies like Microsoft publish country-by-country data going forward, and those data appear to show they’re engaging in tax avoidance, the companies now have a clear platform for explaining that they’re not.
Microsoft’s choice to accompany its new disclosure with an explanatory blog post shows clearly that the Trump administration’s fears are unfounded—and the company’s choice to say nothing at all in defense of its exorbitant Irish and Luxembourg profits suggests strongly that public concerns about tech company tax avoidance are right on target.
