Report: Danish government hits Microsoft with $1bn tax bill

The Danish government is reportedly chasing down Microsoft for nearly a billion dollars in missing tax revenue, stemming from its purchase of Viking accountancy software firm Navision.

According to local media outlet DK, the Danish authorities have begun what could be the largest tax case in the country's history, involving Microsoft's actions after it bought the accountancy software firm Navision for $1.3bn in 2002 and converted it into Microsoft Business Solutions.

The deal was opposed by accountancy software firm Sage as likely to be harmful for competition, but it was approved nontheless. According to sources in the Danish tax ministry, Microsoft then started work on finding ways around Denmark's notoriously high taxes.

According to the report, Microsoft sold the rights to Navison's code to its Irish subsidiary, which in turn is owned by Redmond offshoots in the Virgin Islands and Bermuda. This allowed Redmond to redirect revenues back into its corporate coffers, diverting nearly $11bn in local revenues out of the country and paying a pittance to the Danish authorities.

All this is technically legal, provided it's done right. But the tax authorities have been investigating, and a source told DK that the government thinks it can prove Microsoft sold the rights to its Irish branch at significantly below market value. It has hit Redmond with a tax bill of 5.6bn Danish kroner ($0.98bn), representing lost taxes and interest.

The case certainly has the potential to be massive. Steve Ballmer reported in 2004 that Danes bought more Microsoft business software per capita than anyone in the world. A year later, Redmond was forced to deny reports that it was threatening to pull jobs out of Denmark over the former Vikings' opposition to the European directive on Computer Implemented Inventions (CII).

Microsoft has not made any official comment thus far, and the Danish authorities are unlikely to make any statements until they've brought home the bacon. But people familiar with the matter said that at the time, Microsoft hired a third-party company to assess a fair price for the technology. For its part, Microsoft disputes the timeline of the report and said the Irish subsidiary wasn't involved.

When it comes to clawing money from foreign companies, the Danes have something of a history. In the ninth century the Danish king Cnut conquered much of England, taking vast amounts of tribute (or Danegeld) from the hapless Britons.

The Danes have calmed down a lot since then, but the Seattle coast guard might want to be on the lookout for the odd longboat floating offshore. ®