This week marked a major milestone for corporate tax disclosure, with Microsoft’s public release of country-by-country (CBC) reporting information on its income and tax expense for its fiscal year 2025.
The data show, not surprisingly, that Microsoft is booking a huge share of its worldwide profit in low-tax Ireland and is achieving this despite having a very small share of its employees there. As other companies make similar disclosures between now and the end of calendar year 2026, investors and the public will likely get a much clearer sense of how much profit corporations are hiding offshore—and how much tax they’re avoiding by doing so.
These disclosures are happening because of new European Union (EU) requirements that took effect for corporate fiscal years ending in 2025. The new EU rules mandate publication of the country-by-country data within 12 months after the end of the fiscal year. So Microsoft, which has an unusual fiscal year end date of June 30, is choosing the last possible date to comply with the new law by publishing today.
Most publicly traded companies have fiscal years that follow the calendar year, which means they won’t have to publish their EU reports until this December 31. But there are several major corporations with June 30 fiscal years, including Procter & Gamble and Sysco, that must cough up these details by close of business today.
Microsoft’s first-round disclosure raises some eyebrows, to say the least. Just 3 percent of the company’s worldwide full-time employees were in Ireland last year, but they were (for tax purposes anyway) astonishingly productive, cranking out 38 percent of Microsoft’s worldwide profits. The company discloses paying a current tax rate of just 14 percent on those allegedly Irish profits, which probably goes much further in explaining this astonishing Irish profit margin than the productivity of its Irish workforce.
Meanwhile, the 34 Microsoft employees in Luxembourg were barely enough to throw a company picnic but they managed to “earn” $283 million in profit, according to Microsoft’s new disclosure. The tax rate on those Luxembourg profits? A paltry 3 percent.
Microsoft’s leaders appear to recognize the optics of all this and took the trouble to publish a “pay no attention to the man behind the curtain” blog post discussing the new data. By contrast, Procter & Gamble is, to be charitable, less eager to publicize its CBCR data: its initial report is quietly buried at the very bottom of its “Policies and Practices” page. And it’s not hard to see why they’re so shy. P&G’s one Luxembourg employee was way more efficient than Microsoft’s small team, earning the company a cool $114 million of profit on which the tax rate was precisely zero.
It’s important to note that these new disclosures aren’t requiring companies to jump through any new hoops. The very large corporations that must comply with these sensible new rules are already tabulating all this information and giving it to EU member states. What’s new here is that investors and the public will now be able to evaluate who’s avoiding taxes and who is not. Consumers will be able to decide which companies deserve our hard-earned dollars, and investors will be able to decide which corporations are boosting their profits by engaging in shady tax practices.
To be sure, the new disclosures aren’t perfect. There is not (yet) a single centralized location at which they can be viewed, as is the case with the 10-K annual financial reports that publicly traded U.S. companies must file with the Securities and Exchange Commission. And these reports don’t amount to a truly worldwide set of disclosures: companies have to give country-by-country details on EU member states, and on all countries that are currently on the EU’s tax blacklist. But the rest of the world can be included in a single bucket. This means that for non-EU countries that are known tax avoidance facilitators but aren’t on the EU blacklist, like Bermuda and the Cayman Islands, the new reports aren’t likely to generate any new information. But the new EU data will provide a valuable indicator of which EU member states are facilitating corporate tax avoidance.
These new, EU-mandated disclosures are especially vital now because the public’s confidence in big corporations and the public’s confidence in the fairness of our corporate tax laws is especially (and deservedly) low. Voters recognize that corporate tax avoidance is a problem, they want Congress to fix it, and they also believe (correctly) that this Congress simply won’t do so. The more we shine a light on this problem by naming names, the more likely it is that lawmakers will be forced to fix it.
