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Updated Microsoft is the latest tech firm to be tarred with the "immoral" tax-dodger brush after a report accused Redmond of funneling £1.7bn in UK revenues through Luxembourg and Ireland in order to legally avoid paying tax here.

The Sunday Times reported that the IT giant was sending its British earnings from new operating system Windows 8 to Luxembourg, where the paper alleged that an office staffed with just six workers handled all of the European revenues.

The article said that most of the money ended up in Microsoft's headquarters in Ireland, thus allowing the firm to avoid paying any UK corporation taxes on the resulting profits.

The company contacted El Reg to say:

As a global business, Microsoft adheres carefully to the laws and regulations of every country in which we operate. In the UK, we have consistently paid all corporation tax due which, in the last three years alone, has amounted to more than £63m. Like many other global firms, we maintain – for more than two decades now - a significant European regional headquarters based in Ireland.

Our Microsoft operation in Ireland supports approximately 1,700 staff who develop, produce, distribute and sell Microsoft products throughout Europe, the Middle East and Africa (EMEA). Consequently, our operations in Ireland generate the vast majority of our EMEA product revenue. The income from the sale of Microsoft products sold and distributed across the EMEA region is fully taxed in Ireland.

Fellow "tax-avoiding" firms Amazon, Google and Starbucks have all told UK officials that they follow international tax laws, but MPs have said that while their actions might be perfectly legal, they're also immoral.

The Public Accounts Committee made it clear that it wasn't accusing multinationals of illegal tax avoidance, but it didn't think much of their complicated corporate structures that exploit current legislation to keep them paying the minimum in tax.

“We consider that paying an appropriate amount of tax in the country in which profits are made is not only a matter of basic economics. It is also a matter of morality. The UK should be taking the lead in making this point," committee leader and Labour MP Margaret Hodge said.

The committee has suggested that tax laws need to be changed internationally so that large corporations have nowhere to hide their profits.

The public furore over the allegations of tax avoidance has put some multinationals in hot water. Starbucks felt enough pressure to offer to overpay its tax bill by £20m in the next two years. The company will no longer take tax deductions on its royalties to its Amsterdam office, intercompany loans, capital allowances or coffee purchases from one branch of Starbucks to another, after the "emotional" reaction of its customers.

The Organisation for Economic Co-operation and Development (OECD) has also weighed in, saying that the tax behaviour of large multinationals is getting worse.

Pascal Saint-Amans, director of the OECD's centre for tax policy and administration, told The Observer that there was a huge gap between where firms were operating and where they reported their profits.

"Guess what? The location of the economic activities is in higher tax jurisdictions, but the location of the profits is in lower tax jurisdictions," he said.

"What's new is that this has been acknowledged, recognised, and it has become a political concern." ®

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